SCHWAB CHARLES CORPSCHW

SCHWAB CHARLES CORP Income Taxes Disclosure

10-KFiled Feb 25, 20263 min read
Taxes on Income
The components of taxes on income are as follows:
Year Ended December 31,202520242023
Current:   
Federal$1,898 $1,705 $1,658 
State348 236 131 
Total current2,246 1,941 1,789 
Deferred:   
Federal318 (180)(395)
State43 (11)(83)
Total deferred361 (191)(478)
Taxes on income$2,607 $1,750 $1,311 

The temporary differences that created deferred tax assets and liabilities are detailed below:
December 31,20252024
Deferred tax assets:  
Net unrealized loss on available for sale securities$3,429 $4,635 
Employee compensation, severance, and benefits268 265 
Operating lease liabilities222 200 
Section 174 capitalization associated with internal-use software development59 458 
Net operating loss carryforwards21 13 
Other195 222 
Total deferred tax assets4,194 5,793 
Valuation allowance(27)(20)
Deferred tax assets — net of valuation allowance4,167 5,773 
Deferred tax liabilities:  
Amortization of acquired intangible assets(1,657)(1,710)
Operating lease ROU assets(175)(146)
Capitalized internal-use software development costs(141)(167)
Capitalized contract costs(138)(116)
Other(87)(107)
Total deferred tax liabilities(2,198)(2,246)
Deferred tax assets (liabilities) — net (1)
$1,969 $3,527 
(1) Amounts are included in other assets on the consolidated balance sheets.
A reconciliation of the federal statutory income tax rate to the effective income tax rate is as follows:
Year Ended December 31,202520242023
AmountPercentAmountPercentAmountPercent
Federal statutory income tax rate$2,406 21.0%$1,615 21.0%$1,339 21.0%
State income taxes, net of federal tax benefit (1)
305 2.7%194 2.5%(60)(0.9)%
Tax credits:
Research and development credits(30)(0.3)%(52)(0.7)%(150)(2.4)%
   Other(86)(0.8)%(52)(0.7)%(26)(0.4)%
Nontaxable or nondeductible items9 0.1%48 0.7%46 0.7%
Changes in unrecognized tax benefits7 0.1%(13)(0.1)%139 2.2%
Other adjustments(4)— 10 0.1%23 0.4%
Effective income tax rate$2,607 22.8%$1,750 22.8%$1,311 20.6%
(1) State taxes in California and New York made up the majority (greater than 50 percent) of the tax effect in this category.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
December 31,20252024
Balance at beginning of year$373 $380 
Additions for tax positions related to the current year88 48 
Additions for tax positions related to prior years78 17 
Reductions for tax positions related to prior years(56)(38)
Reductions due to lapse of statute of limitations(12)(10)
Reductions for settlements with tax authorities(13)(24)
Balance at end of year$458 $373 

Unrecognized tax benefits totaled $458 million and $373 million as of December 31, 2025 and 2024, respectively, $386 million and $314 million of which if recognized, would affect the annual effective tax rate.

Interest and penalties were accrued related to unrecognized tax benefits in tax expense. At December 31, 2025 and 2024, we had accrued approximately $66 million and $81 million, respectively, for the payment of interest and penalties.

The Company and its subsidiaries are subject to routine examinations by the respective federal, state, and applicable local jurisdictions’ taxing authorities. Federal returns for 2017 through 2024 remain subject to examination. The years open to examination by state and local governments vary by jurisdiction.

The components of income taxes paid (net of refunds received) are as follows:
Year Ended December 31,202520242023
Federal$1,089 $1,281 $1,345 
State (1)
480 199 272 
Foreign6 11 3 
Income taxes paid (net of refunds received)$1,575 $1,491 $1,620 
(1) Income taxes paid (net of refunds) to California of $216 million and $100 million for the years ended December 31, 2025 and 2023, respectively, exceeded 5 percent of total income taxes paid (net of refunds received). No other payments (net of refunds) to state jurisdictions exceeded 5 percent of total income taxes paid (net of refunds received) during the periods presented.
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About Income Taxes Disclosures

The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.

Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.

Other Available Disclosures

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