TRAVELERS COMPANIES, INC.TRV

TRAVELERS COMPANIES, INC. Income Taxes Disclosure

10-KFiled Feb 12, 20265 min read
INCOME TAXES
Enactment of the One Big Beautiful Bill Act of 2025
On July 4, 2025, the U.S. enacted a budget reconciliation package known as the One Big Beautiful Bill Act of 2025 (OBBBA), which includes both tax and non-tax provisions. The changes resulting from the tax provisions in OBBBA did not have a material impact on the Company’s income tax expense and results of operations, financial position or liquidity.
Components of Income Tax Expense
The following table presents the components of the Company’s U.S. federal and state, as well as foreign income tax expense (benefit) included in the amounts reported in the Company’s consolidated financial statements.
(for the year ended December 31, in millions)202520242023
Composition of income tax expense included in the consolidated statement of income
Current expense:
Federal$1,171 $1,252 $477 
Foreign89 70 20 
State17 14 7 
Total current tax expense1,277 1,336 504 
Deferred expense (benefit):
Federal210 (152)(163)
Foreign21 (3)39 
Total deferred tax expense (benefit)231 (155)(124)
Total income tax expense included in the consolidated
 statement of income
1,508 1,181 380 
Composition of income tax expense (benefit) included
 in shareholders’ equity
Expense (benefit) relating to changes in the unrealized gain (loss) on investments, unrealized loss on foreign exchange and other items in other comprehensive income (loss)620 (79)520 
Total income tax expense included in the
 consolidated financial statements
$2,128 $1,102 $900 
Tax Rate Reconciliation
The following is a reconciliation of income tax expense at the U.S. federal statutory income tax rate to the income tax expense reported in the Company’s consolidated statement of income.
2025
(for the year ended December 31, in millions)AmountPercentage
Income before income taxes
Federal$7,372 
Foreign424 
Total income before income taxes7,796 
Effective tax rate
Federal statutory tax rate21 %
Federal statutory income tax rate1,637 21.0 %
Nontaxable or nondeductible items
Nontaxable investment income(129)(1.7)%
Other(22)(0.3)%
Other adjustments, net22 0.3 %
Effective tax rate$1,508 19.3 %
(for the year ended December 31, in millions)20242023
Income before income taxes
U.S.$5,947 $3,122 
Foreign233 249 
Total income before income taxes6,180 3,371 
Effective tax rate
Statutory tax rate21 %21 %
Expected federal income tax expense1,298 708 
Tax effect of:
Nontaxable investment income(122)(132)
Audit reserve9 (205)
Other, net(4)9 
Total income tax expense$1,181 $380 
Effective tax rate19 %11 %
The Company recognized a one-time tax benefit of $211 million in the first quarter of 2023 due to the expiration of the statute of limitations with respect to a tax item impacted by the repeal of Internal Revenue Code Section 847, which related to the discounting of property-casualty loss reserves. This amount is included in the Audit reserve line in the table above.
Income Taxes Paid
(for the year ended December 31, in millions)2025
Income taxes paid:
Federal$1,159 
Foreign:
United Kingdom65 
Other33 
Total foreign98 
State17 
Total income taxes paid$1,274 
The Company paid income taxes of $1.31 billion and $201 million during the years ended December 31, 2024 and 2023, respectively. The current income tax payable of $309 million and $301 million as of December 31, 2025 and 2024, respectively, was included in other liabilities in the consolidated balance sheet.
Deferred Tax Asset
The net deferred tax asset comprises the tax effects of temporary differences related to the following assets and liabilities.
(as of December 31, in millions)20252024
Deferred tax assets
Investments$61 $659 
Claims and claim adjustment expense reserves780 708 
Unearned premium reserves854 833 
Internally developed software— 303 
Other247 261 
Total gross deferred tax assets1,942 2,764 
Less: valuation allowance47 38 
Adjusted gross deferred tax assets1,895 2,726 
Deferred tax liabilities
Deferred acquisition costs691 673 
Intangibles90 87 
Depreciation114 118 
Internally developed software8 — 
Other63 86 
Total gross deferred tax liabilities966 964 
Less amounts classified as held for sale42 — 
Net deferred tax asset$887 $1,762 
If the Company determines that any of its deferred tax assets will not result in future tax benefits, a valuation allowance must be established for the portion of these assets that are not expected to be realized. The net change in the valuation allowance for deferred tax assets was an increase of $9 million in 2025, primarily driven by an increase in the Company’s Canadian subsidiaries. Based upon a review of the Company’s anticipated future taxable income, and also including all other available evidence, both positive and negative, the Company’s management concluded that it is more likely than not that the net deferred tax assets will be realized.
U.S. income taxes have not been recognized on any undistributed earnings that are intended to be permanently reinvested. Any potential U.S. income tax on these amounts is immaterial.
Net Operating Losses
For tax return purposes, as of December 31, 2025, the Company had net operating loss (NOL) carryforwards in the United States, Canada, the Republic of Ireland and the United Kingdom. The amount and timing of realizing the benefits of NOL carryforwards depend on future taxable income and limitations imposed by tax laws. Substantially all the United States and United Kingdom NOL carryforwards have been recognized in the consolidated financial statements and included in net deferred tax assets. None of the Republic of Ireland and Canada NOL carryforwards have been recognized in the consolidated financial statements and included in net deferred tax assets. The NOL amounts by jurisdiction and year of expiration are as follows:
(in millions)AmountYear of 
expiration
United States$21 2035-2036
Canada$125 2035-2045
Republic of Ireland$115 None
United Kingdom$104 None
Uncertain Tax Positions
The following is a reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31, 2025 and 2024.
(in millions)20252024
Balance as of January 1$17 $14 
Additions for tax positions of prior years— 1 
Reductions for tax positions of prior years(1)(1)
Additions based on tax positions related to current year3 4 
Expiration of statute of limitations(3)(1)
Balance as of December 31$16 $17 
Included in the balances as of December 31, 2025 and 2024 were $15 million and $17 million, respectively, of unrecognized tax benefits that, if recognized, would affect the annual effective tax rate. Also included in the balances as of those dates were $1 million and $0 million, respectively, of tax positions for which the ultimate deductibility is certain, but for which there is uncertainty about the timing of deductibility. The timing of such deductibility could affect the annual effective tax rate depending on the year of deduction and tax rate at the time.
The Company recognizes accrued interest and penalties, if any, related to unrecognized tax benefits in income taxes. During the years ended December 31, 2025, 2024 and 2023, the Company recognized approximately $1 million, $5 million and $3 million in interest, respectively. The Company had approximately $12 million and $11 million accrued for the payment of interest as of December 31, 2025 and 2024, respectively.
The IRS has completed examination of the Company’s U.S. income tax returns for all years through 2018. The statute of limitations for federal income tax purposes has closed for all tax years prior to 2022.

Historical Timeline

Fiscal YearFiled
2025Feb 12, 2026Showing above
2024Feb 13, 2025
2023Feb 15, 2024
2022Feb 16, 2023
2021Feb 17, 2022
2020Feb 11, 2021
2019Feb 13, 2020
2018Feb 14, 2019
2017Feb 15, 2018
2016Feb 16, 2017
2015Feb 11, 2016

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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