WASTE MANAGEMENT INC Income Taxes Disclosure

8.    Income Taxes

Income Tax Expense

Our income tax expense consisted of the following for the year ended December 31 (in millions):

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The U.S. federal statutory income tax rate is reconciled to the effective income tax rate for the year ended December 31 as follows (in millions, except percentages):

The comparability of our income tax expense for the reported periods has been primarily affected by (i) federal tax credits; (ii) variations in our income before income taxes; (iii) impacts of adopting Accounting Standards Updates (“ASU”) 2023-02 and (iv) the tax implications of impairments.

Income before income taxes by source for the year ended December 31 was as follows (in millions):

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Renewable Natural Gas — Through our Renewable Energy segment, we have invested in building landfill gas-to-energy facilities in the U.S. and Canada that produce renewable electricity and RNG. We expect our new RNG facilities to qualify for federal tax credits and to realize those credits through 2027 under Section 48 of the Internal Revenue Code. We completed construction of seven RNG facilities in 2025, five RNG facilities in 2024 and one RNG facility in 2023, resulting in a reduction to our income tax expense of $184 million, $137 million and $8 million, respectively.

Low-Income Housing — We have significant financial interests in entities established to invest in and manage low-income housing properties. We support the operations of these entities in exchange for a pro-rata share of the tax credits they generate. The low-income housing investments qualify for federal tax credits that we expect to realize through 2036 under Section 42 and Section 45D of the Internal Revenue Code.

As a result of adopting ASU 2023-02 in 2024, we amortize our investments in these entities using the proportional amortization method. Under the proportional amortization method, the equity investment is amortized in proportion to the income tax credits and other income tax benefits received. The amortization expense and the income tax credits are required to be presented on a net basis in income tax expense on the Consolidated Statements of Operations. Prior to 2024, we accounted for our investments in these entities using the equity method of accounting, recognizing our share of each entity’s results of operations and other reductions in the value of our investments in equity in net income (loss) of unconsolidated entities, within our Consolidated Statements of Operations.

During the years ended December 31, 2025 and 2024, we recognized income tax expense of $96 million and $78 million, respectively, related to amortization under ASU 2023-02 and a reduction in our income tax expense of $137 million and $104 million, respectively, primarily due to federal tax credits realized from these investments. For the year ended December 31, 2023, we recognized net losses of $66 million and a reduction in our income tax expense of $108 million primarily due to federal tax credits realized from these investments as well as the tax benefits from the pre-tax losses realized. In addition, during the years ended December 31, 2025, 2024 and 2023, we recognized interest expense of $33 million, $24 million and $15 million, respectively, associated with our investments in low-income housing properties. See Notes 2 and 18 for additional information related to these unconsolidated variable interest entities.

Tax Implications of Impairments — During the years ended December 31, 2024 and 2023, we recognized additional income tax expense of $14 million and $50 million, respectively, due to non-cash impairment charges that were not deductible for tax purposes in the year of impairment. The non-cash impairment charges recognized during 2025 were deductible for tax purposes. See Note 11 for more information related to our impairment charges.

Tax Audits — We participate in the IRS’s Compliance Assurance Process, which means we work with the IRS throughout the year towards resolving any material issues prior to the filing of our annual tax return. Any unresolved issues as of the tax return filing date are subject to routine examination procedures. In the fourth quarter of 2022, the Company received a notice of tax due for the 2017 tax year related to a remaining disagreement with the IRS. In response to the notice, the Company made a deposit of approximately $103 million with the IRS. In the fourth quarter of 2024, the Company filed a claim for refund of the entire amount deposited with the IRS. We expect to litigate any denial of the claim for refund. As of December 31, 2025 and 2024, the IRS deposit, net of reserve for uncertain tax positions, was classified as a component of other long-term assets in the Company’s Consolidated Balance Sheets.

In addition, we are under IRS audits for the 2024 and 2025 tax years and expect the audits to be completed within the next 15 months. We are also currently undergoing audits by the Canada Revenue Agency for the 2021 tax year and various state and local jurisdictions for tax years that date back to 2018.

Tax Legislation — On July 4, 2025, President Trump signed the One Big Beautiful Bill Act into law. We have evaluated the business tax provisions in the legislation, none of which had a material impact on our effective tax rate. However, we had a beneficial impact to cash taxes related to bonus depreciation.

Deferred Tax Assets (Liabilities)

The components of net deferred tax liabilities as of December 31 are as follows (in millions):

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These net deferred tax liabilities are included as a component of other long-term assets, accrued liabilities and deferred income taxes in our Consolidated Balance Sheets. As of December 31, 2025, we had $114 million of international net operating loss carry-forwards with expiration dates through 2034 and $2.2 billion of state net operating loss carry-forwards with expiration dates through 2045. We also had $46 million of foreign interest expense carry-forwards that do not expire, $40 million of foreign tax credit carry-forwards with expiration dates through 2033 and $5 million of state tax credit carry-forwards with expiration dates through 2038.

We have established valuation allowances for uncertainties in realizing the benefit of certain tax loss and credit carry-forwards and other deferred tax assets. While we expect to realize the deferred tax assets, net of the valuation allowances, changes in estimates of future taxable income or in tax laws may alter this expectation.

Liabilities for Uncertain Tax Positions

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits, including accrued interest, is as follows (in millions):

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These liabilities are included as a component of other long-term liabilities or as an offset to other long-term assets in our Consolidated Balance Sheets. As of December 31, 2025, we had $36 million of net unrecognized tax benefits that, if recognized in future periods, would impact our effective income tax rate.

We recognize interest expense related to unrecognized tax benefits in our income tax expense, which was not material for the reported periods. We did not have any material accrued liabilities or expense for penalties related to unrecognized tax benefits for the reported periods.