Solventum CorpSOLV
Solventum Corp Income Taxes Disclosure
Income Taxes
Income (loss) before income taxes consisted of the following:
| Year ended December 31, | ||||||||||||||||||||
| (Millions) | 2025 | 2024 | 2023 | |||||||||||||||||
| United States | $ | 592 | $ | (47) | $ | 1,221 | ||||||||||||||
| International | 1,121 | 652 | 446 | |||||||||||||||||
| Total | $ | 1,713 | $ | 605 | $ | 1,667 | ||||||||||||||
Provision (benefit) for income taxes consisted of the following:
| Year ended December 31, | ||||||||||||||||||||
| (Millions) | 2025 | 2024 | 2023 | |||||||||||||||||
| Currently payable | ||||||||||||||||||||
| Federal | $ | 29 | $ | 112 | $ | 148 | ||||||||||||||
| State | 38 | 25 | 44 | |||||||||||||||||
| International | 210 | 145 | 271 | |||||||||||||||||
| Deferred | ||||||||||||||||||||
| Federal | 43 | (134) | (8) | |||||||||||||||||
| State | (13) | (11) | (9) | |||||||||||||||||
| International | (150) | (10) | (125) | |||||||||||||||||
| Total | $ | 157 | $ | 127 | $ | 321 | ||||||||||||||
Components of deferred tax assets and (liabilities) are comprised of the following:
| December 31, | ||||||||||||||
| (Millions) | 2025 | 2024 | ||||||||||||
| Deferred tax assets: | ||||||||||||||
| Miscellaneous accruals | $ | 51 | $ | 42 | ||||||||||
| Accrued compensation | 164 | 159 | ||||||||||||
| Net operating/capital loss carryforward | 67 | 55 | ||||||||||||
| Disallowed interest carryforwards | — | 14 | ||||||||||||
| Foreign tax credits | 41 | 35 | ||||||||||||
| Research and experimentation capitalization | 42 | 129 | ||||||||||||
| Lease liabilities | 47 | 32 | ||||||||||||
| Other deferred tax assets | 22 | 28 | ||||||||||||
| Derivatives | 19 | (8) | ||||||||||||
| Gross deferred tax assets | 453 | 486 | ||||||||||||
| Valuation allowance | (37) | (33) | ||||||||||||
| Total deferred tax assets | 416 | 453 | ||||||||||||
| Deferred tax liabilities: | ||||||||||||||
| Property, plant, and equipment | (45) | (78) | ||||||||||||
| Intangible assets | (226) | (278) | ||||||||||||
| Right-of-use assets | (47) | (33) | ||||||||||||
| Total deferred tax liabilities | (318) | (389) | ||||||||||||
| Net deferred tax asset (liability) | $ | 98 | $ | 64 | ||||||||||
As displayed in the table above, as of December 31, 2025, the Company has provided $37 million of valuation allowance against certain of these deferred tax assets based on management’s determination that it is more-likely-than-not that the tax benefits related to these assets will not be realized.
As of December 31, 2025, the Company had tax-effected operating loss and capital loss carryforwards of $67 million and tax credit carryforwards of $43 million for federal, state, and international jurisdictions, with all amounts before limitation impacts and valuation allowances. Federal and international tax attributes will expire after one to an indefinite carryover period and state tax attributes will expire after one to eighteen years.
As a result of our prospective adoption of ASU 2023-09, the following table presents income taxes paid, net of refunds, disaggregated by jurisdiction in accordance with the new disclosure requirements is provided below:
| Year ended December 31, | ||||||||
| (Millions) | 2025 | |||||||
| U.S. federal | $ | 22 | ||||||
| U.S. state and local | 21 | |||||||
| International | ||||||||
| China | 14 | |||||||
| Germany | 14 | |||||||
| Ireland | 54 | |||||||
| Other international | 56 | |||||||
| Total | $ | 181 | ||||||
As previously disclosed, cash payments directly to tax authorities were $244 million for the year ended December 31, 2024.
In accordance with our prospective adoption of ASU 2023-09, the following table presents a reconciliation of the U.S. federal statutory income tax rate to Solventum's worldwide effective income tax rate is provided below:
| Year ended December 31, | ||||||||||||||
| 2025 | ||||||||||||||
| (Millions) | Amount | Percent | ||||||||||||
| U.S. federal statutory income tax rate | $ | 360 | 21.0 | % | ||||||||||
State and local income taxes, net of federal income tax effect (a) | 20 | 1.2 | ||||||||||||
| Foreign tax effects | ||||||||||||||
| Cayman Islands | ||||||||||||||
| Statutory tax rate difference between Cayman Islands and United States | (173) | (10.0) | ||||||||||||
| Ireland | ||||||||||||||
| Statutory tax rate difference between Ireland and United States | (52) | (3.0) | ||||||||||||
| Other | 23 | 1.3 | ||||||||||||
| Germany | ||||||||||||||
| Statutory tax rate difference between Germany and United States | 20 | 1.1 | ||||||||||||
| Trade tax | (54) | (3.2) | ||||||||||||
| Other | 5 | 0.3 | ||||||||||||
| Japan | ||||||||||||||
| Purification and Filtration Divestiture | 21 | 1.2 | ||||||||||||
| Other | (7) | (0.4) | ||||||||||||
| Other foreign jurisdictions | 46 | 2.7 | ||||||||||||
| Effect of changes in tax laws or rates exacted in the current period | 10 | 0.6 | ||||||||||||
| Effect of cross-border tax laws | ||||||||||||||
| Global Intangible Low Taxed Income (GILTI) | 52 | 3.0 | ||||||||||||
| Other | 2 | 0.1 | ||||||||||||
| Tax credits | (16) | (0.9) | ||||||||||||
| Changes in valuation allowances | — | — | ||||||||||||
| Nontaxable or nondeductible items | 22 | 1.3 | ||||||||||||
| Changes in unrecognized tax benefit | (8) | (0.5) | ||||||||||||
| Other adjustments | ||||||||||||||
| Purification and Filtration Divestiture | (112) | (6.5) | ||||||||||||
| Other | (2) | (0.1) | ||||||||||||
| Effective tax rate | $ | 157 | 9.2 | % | ||||||||||
(a)State and local taxes in Illinois, Pennsylvania, and Maryland made up the majority (greater than 50 percent) of the tax effect in this category.
A reconciliation of the U.S. federal statutory income tax rate to Solventum's worldwide effective income tax rate is provided below:
| Year ended December 31, | ||||||||||||||
| (Millions) | 2024 | 2023 | ||||||||||||
| U.S. Statutory income tax rate | 21.0 | % | 21.0 | % | ||||||||||
| State income taxes - net of federal benefit | 1.8 | 1.7 | ||||||||||||
| International income taxes - net | (7.0) | (1.3) | ||||||||||||
| Global Intangible Low Taxed Income (GILTI) | 4.2 | 0.8 | ||||||||||||
| Foreign Derived Intangible Income (FDII) | (3.3) | (2.2) | ||||||||||||
| U.S. research and development credit | (4.1) | (1.2) | ||||||||||||
| Reserves for tax contingencies | (1.4) | (4.1) | ||||||||||||
| Tax impact of legal entity restructuring | 4.7 | 2.3 | ||||||||||||
| Changes in valuation allowance | 2.6 | 1.4 | ||||||||||||
| Deferred rate change | 0.9 | 0.1 | ||||||||||||
| All other - net | 1.5 | 0.8 | ||||||||||||
| Effective income tax rate | 20.9 | % | 19.3 | % | ||||||||||
The effective income tax rate for 2025 was 9.2%, compared to 20.9% in 2024, a decrease of 11.7 percentage points. The primary factors that decreased the tax rate were the tax impacts of the Purification and Filtration divestiture recognized in various jurisdictions and favorable changes in the jurisdictional mix of earnings.
The Company recognizes the amount of income tax benefit that has a greater than 50% likelihood of being ultimately realized upon settlement. Changes in unrecognized tax benefits impacting the provision for income taxes of the Company have been reflected in the consolidated statements of income. Interest and penalties are also recognized in the provision for income taxes in the consolidated statements of income. For uncertain tax positions that the Company expects to be legally liable for, the unrecognized tax benefits and interest and penalties of $49 million and $36 million have been recorded to "Other liabilities" as of December 31, 2025 and 2024, respectively on the consolidated balance sheets. For uncertain tax positions where the Company is not legally and directly liable for, unrecognized tax benefits and interest and penalties are charged to "Net parent investment" on the consolidated balance sheets. A rollforward of unrecognized tax benefits ("UTB") is as follows:
| (Millions) | 2025 | 2024 | 2023 | |||||||||||||||||
| Gross UTB Balance at January 1 | $ | 137 | $ | 205 | $ | 307 | ||||||||||||||
| Increase (decrease) for tax positions of the current year | (3) | 4 | 22 | |||||||||||||||||
| Increase (decrease) for tax positions of prior years | (5) | (64) | (18) | |||||||||||||||||
| Settlements with tax authorities | — | — | — | |||||||||||||||||
| Reductions due to lapse of applicable statute of limitations | (6) | (8) | (74) | |||||||||||||||||
| Reductions for amounts recorded to net parent investment | — | — | (32) | |||||||||||||||||
| Gross UTB Balance at December 31 | $ | 123 | $ | 137 | $ | 205 | ||||||||||||||
The total amount of UTB, if recognized, would affect the effective tax rate by $127 million as of December 31, 2025. The Company has ongoing federal, state and international income tax audits in various jurisdictions and evaluates uncertain tax positions that may be challenged by local tax authorities and not fully sustained. These uncertain tax positions are reviewed on an ongoing basis and adjusted in light of facts and circumstances including progression of tax audits, developments in case law and closing statutes of limitation.
There is audit activity in several U.S. Federal, state and foreign jurisdictions where the Company is subject to ongoing tax examinations and governmental assessments, which could be impacted by evolving political environments in those jurisdictions. As of December 31, 2025, no taxing authority proposed significant adjustments to the Company’s tax positions for which the Company is not adequately reserved.
The Company recognizes interest and penalties accrued related to unrecognized tax benefits in tax expense. The Company recognized in the consolidated statements of income on a gross basis approximately $0.1 million of benefit, $1.0 million of benefit, and $7.5 million of benefit in 2025, 2024 and 2023, respectively. The amount of interest and penalties recognized may be an expense or benefit due to new or remeasured unrecognized tax benefit accruals. At December 31, 2025 and 2024, accrued interest and penalties in the consolidated balance sheets on a gross basis were $5.3 million and $5.3 million, respectively.
As of December 31, 2025, the Company provides for deferred taxes associated with foreign earnings in certain subsidiaries that are not considered permanently reinvested. The Company has not provided deferred taxes on approximately $1 billion of undistributed earnings from non-U.S. subsidiaries which are indefinitely reinvested in operations. It is not practical to determine the income tax liability that would be payable if such earnings were not reinvested indefinitely.
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.