Frontier Group Holdings, Inc.ULCC
Frontier Group Holdings, Inc. Income Taxes Disclosure
Income Taxes
The components of income tax expense are as follows (in millions):
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Current: | |||||||||||||||||
| Federal | $ | — | $ | — | $ | (1) | |||||||||||
| State and local | — | — | 1 | ||||||||||||||
| Foreign | — | 1 | — | ||||||||||||||
| Current income tax expense (benefit) | — | 1 | — | ||||||||||||||
| Deferred: | |||||||||||||||||
| Federal | 2 | (4) | 41 | ||||||||||||||
| State and local | 1 | 4 | 2 | ||||||||||||||
| Deferred income tax expense (benefit) | 3 | — | 43 | ||||||||||||||
| Total income tax expense (benefit) | $ | 3 | $ | 1 | $ | 43 | |||||||||||
The income tax provision differs from that computed at the federal and state statutory corporate tax rate as follows (in millions):
| Year Ended December 31, | |||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||||||||||||||||||||
| $ | (28) | 21.0 | % | $ | 18 | 21.0 | % | $ | 7 | 21.0 | % | ||||||||||||||||||||||||
State Taxes, Net of Federal Benefit(a) | 1 | (0.7) | 5 | 5.8 | 3 | 9.8 | |||||||||||||||||||||||||||||
| Foreign Tax Effects: | |||||||||||||||||||||||||||||||||||
| Other | 1 | (0.7) | 1 | 1.2 | 1 | 3.1 | |||||||||||||||||||||||||||||
| Tax Credits: | |||||||||||||||||||||||||||||||||||
| Research and Development and Other Tax Credits | (2) | 1.5 | (1) | (1.2) | (1) | (3.1) | |||||||||||||||||||||||||||||
| Changes in Valuation allowance | 28 | (21.1) | (23) | (26.8) | 35 | 109.4 | |||||||||||||||||||||||||||||
| Nontaxable or Nondeductible Items: | |||||||||||||||||||||||||||||||||||
| Share-Based Compensation | — | — | — | — | (5) | (15.1) | |||||||||||||||||||||||||||||
| Executive Compensation | 2 | (1.5) | (1) | (1.2) | 1 | 3.1 | |||||||||||||||||||||||||||||
| Meals and Entertainment | 1 | (0.7) | 1 | 1.2 | 1 | 3.1 | |||||||||||||||||||||||||||||
| Other | — | — | 1 | 1.2 | 1 | 3.1 | |||||||||||||||||||||||||||||
| Effective income tax rate and impact | $ | 3 | (2.2) | % | $ | 1 | 1.2 | % | $ | 43 | 134.4 | % | |||||||||||||||||||||||
__________________
(a)During the year ended December 31, 2025, state taxes in California, Florida, Colorado and Oregon comprised greater than 50% of the tax effect in this category. During the year ended December 31, 2024, state taxes in Colorado comprised greater than 50% of the tax effect in this category. During the year ended December 31, 2023, state taxes in California, Florida, Georgia, Iowa and Maryland comprised greater than 50% of the tax effect in this category.
The effective tax rate for the year ended December 31, 2025 was lower than the statutory rate, primarily due to an increase in the Company’s valuation allowance relating to U.S. federal and state net operating losses (“NOLs”), compared to a lower effective tax rate for the year ended December 31, 2024 due to a decrease in the Company’s valuation allowance relating to U.S. federal and state NOLs. The effective tax rate for the year ended December 31, 2023 was higher than the statutory rate, primarily due to the establishment of valuation allowances against the Company’s U.S. federal and state NOL carryforwards and limitations on the compensation provided to certain
executives pursuant to Internal Revenue Code section 162(m), partially offset by windfall benefits recognized with respect to stock based compensation.
The Company had net tax payments/(refunds) of $1 million for the year ended December 31, 2025 and less than $1 million for each of the years ended December 31, 2024 and 2023, respectively.
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial statement and income tax purposes. The following table shows the components of the Company’s deferred tax assets and liabilities (in millions):
| December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Deferred tax assets: | |||||||||||
| Operating lease liability | $ | 1,106 | $ | 895 | |||||||
| Leasehold interest | 13 | — | |||||||||
| Net operating losses | 124 | 67 | |||||||||
| Nondeductible accruals | 31 | 33 | |||||||||
| Deferred revenue | — | 9 | |||||||||
| Income tax credits | 3 | 1 | |||||||||
| Valuation allowance | (65) | (30) | |||||||||
| Other | 13 | 13 | |||||||||
| Deferred tax assets | $ | 1,225 | $ | 988 | |||||||
| Deferred tax liabilities: | |||||||||||
| Right-of-use asset | $ | (1,096) | $ | (887) | |||||||
| Property and equipment | (38) | (42) | |||||||||
| Intangibles | (6) | (6) | |||||||||
| Prepaid maintenance expense | (93) | (59) | |||||||||
| Other | (4) | (2) | |||||||||
| Deferred tax liabilities | (1,237) | (996) | |||||||||
| Net deferred tax assets (liabilities) | $ | (12) | $ | (8) | |||||||
As of December 31, 2025, the Company’s net deferred tax liability balance was $12 million, and was classified within other long-term liabilities on the Company’s consolidated balance sheet. This balance included $124 million of deferred tax assets related to NOL carry forwards which are made up of $93 million of federal NOLs, which do not expire, $16 million of state NOLs, which expire from one year to having no expiration, and $15 million of foreign NOLs, which start to expire in 19 years. The Company recognizes a valuation allowance when it is more likely than not that some portion, or all, of the Company’s deferred tax assets, will not be realized. The Company considers sources of taxable income from prior period carryback periods, future reversals of existing taxable temporary differences, tax planning strategies and future taxable income when assessing the future utilization of deferred tax assets.
The Company considers all available positive and negative evidence in determining the need for a valuation allowance. A significant piece of objective negative evidence evaluated was the cumulative loss incurred over recent periods. Such objective evidence limits the ability to consider other subjective evidence, such as projections for future profitability to utilize deferred tax assets.
The Company concluded that as of December 31, 2025, it is more likely than not that the benefit from a portion of its federal, state and foreign deferred tax assets will not be realized. Accordingly, the Company maintained a valuation allowance of $65 million against its deferred tax assets for U.S. federal, state and foreign NOL
carryforwards, which reflects the impact of expected income generated as a result of future reversals of existing taxable temporary differences. As a result of the change in the overall net deferred tax position, the Company recorded a $35 million income tax expense for the year ended December 31, 2025 due to an increase of the valuation allowance.
The following table shows the components of the Company’s unrecognized tax benefits related to uncertain tax positions (in millions):
| 2025 | 2024 | 2023 | |||||||||||||||
| Unrecognized tax benefits at January 1 | $ | — | $ | — | $ | 1 | |||||||||||
| Decrease for tax positions taken during prior period | — | — | (1) | ||||||||||||||
| Increase for tax positions taken during current period | 1 | — | — | ||||||||||||||
| Unrecognized tax benefits at December 31 | $ | 1 | $ | — | $ | — | |||||||||||
During 2025, the Company recognized an increase in its liability for unrecognized tax benefits related to both prior year and current year positions. The Company accrues interest and penalty, as needed, related to unrecognized tax benefits in its provision for income taxes. The amounts recorded in the Company’s consolidated financial statements related to interest and penalties were less than $1 million for each of the years ended December 31, 2025, 2024 and 2023, respectively.
The Company files its tax returns as prescribed by the tax laws of the jurisdictions in which it operates. The Company's federal income tax returns for tax years 2022 and forward remain open. Additionally, various tax years remain open to examination by state and local taxing jurisdictions.
On July 4, 2025, H.R. 1, the One Big Beautiful Bill Act (the “OBBBA”) was signed into law in the United States. Among other changes, the OBBBA modifies key business tax provisions, including, but not limited to, 100% bonus depreciation, reverting to the higher, EBITDA-based, business interest expense limitation and modifying certain international tax provisions. The Company does not expect these provisions will have a material impact on its consolidated financial statements.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 18, 2026 | Showing above |
| 2024 | Feb 18, 2025 | |
| 2023 | Feb 20, 2024 | |
| 2022 | Feb 22, 2023 | |
| 2021 | Feb 23, 2022 | |
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.