WILLIS TOWERS WATSON PLC Income Taxes Disclosure
Note 7 — Income Taxes
Provision for Income Taxes
An analysis of income from operations before income taxes and interest in earnings of associates by taxing jurisdiction is shown below:
|
|
Years ended December 31, |
|
|||||||||
|
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
Ireland |
|
$ |
23 |
|
|
$ |
22 |
|
|
$ |
14 |
|
U.S. |
|
|
457 |
|
|
|
(1,469 |
) |
|
|
348 |
|
U.K. |
|
|
203 |
|
|
|
384 |
|
|
|
(93 |
) |
Rest of World |
|
|
1,270 |
|
|
|
1,165 |
|
|
|
1,007 |
|
Total |
|
$ |
1,953 |
|
|
$ |
102 |
|
|
$ |
1,276 |
|
The components of the provision for income taxes include:
|
|
Years ended December 31, |
|
|||||||||
|
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
Current tax expense: |
|
|
|
|
|
|
|
|
|
|||
Ireland |
|
$ |
62 |
|
|
$ |
(74 |
) |
|
$ |
(6 |
) |
U.S. federal taxes |
|
|
52 |
|
|
|
(86 |
) |
|
|
(106 |
) |
U.S. state and local taxes |
|
|
(32 |
) |
|
|
(18 |
) |
|
|
(41 |
) |
U.K. corporation tax |
|
|
(121 |
) |
|
|
(68 |
) |
|
|
(40 |
) |
Other jurisdictions |
|
|
(224 |
) |
|
|
(159 |
) |
|
|
(131 |
) |
Total current tax expense |
|
|
(263 |
) |
|
|
(405 |
) |
|
|
(324 |
) |
Deferred tax (expense)/benefit: |
|
|
|
|
|
|
|
|
|
|||
Ireland |
|
|
(1 |
) |
|
|
(1 |
) |
|
|
(1 |
) |
U.S. federal taxes |
|
|
(107 |
) |
|
|
166 |
|
|
|
20 |
|
U.S. state and local taxes |
|
|
(7 |
) |
|
|
16 |
|
|
|
15 |
|
U.K. corporation tax |
|
|
49 |
|
|
|
26 |
|
|
|
63 |
|
Other jurisdictions |
|
|
11 |
|
|
|
6 |
|
|
|
12 |
|
Total deferred tax (expense)/benefit |
|
|
(55 |
) |
|
|
213 |
|
|
|
109 |
|
Total provision for income taxes |
|
$ |
(318 |
) |
|
$ |
(192 |
) |
|
$ |
(215 |
) |
Effective Tax Rate Reconciliation
The table below provides the updated requirements of ASU 2023-09 for 2025. See Note 2 — Basis of Presentation, Significant Accounting Policies and Recent Accounting Pronouncements for additional details on the adoption of this ASU.
Willis Towers Watson plc is a non-trading holding company tax resident in Ireland where it is taxed at the statutory corporate rate of 25%. The reported provision for income taxes differs from the amounts that would have resulted had the reported income from operations before income taxes and interest in earnings of associates been taxed at the Irish statutory corporate tax rate. The principal reasons for the differences between the amounts provided and those that would have resulted from the application of the Irish statutory corporate tax rate are as follows:
|
|
Year ended |
|
|||||
|
|
Amount |
|
|
ETR % |
|
||
INCOME FROM OPERATIONS BEFORE INCOME TAXES |
|
$ |
1,953 |
|
|
|
|
|
Irish statutory corporate tax rate |
|
|
(488 |
) |
|
|
(25.0 |
)% |
Foreign tax effects: |
|
|
|
|
|
|
||
United States |
|
|
|
|
|
|
||
Statutory tax rate difference between United States and Ireland |
|
|
18 |
|
|
|
0.9 |
% |
Impact of U.S. state and local taxes (net of federal taxes) |
|
|
(26 |
) |
|
|
(1.3 |
)% |
Other adjustments |
|
|
(5 |
) |
|
|
(0.3 |
)% |
United Kingdom |
|
|
|
|
|
|
||
Effect of cross-border tax laws |
|
|
(44 |
) |
|
|
(2.3 |
)% |
Other adjustments |
|
|
47 |
|
|
|
2.4 |
% |
Bermuda |
|
|
|
|
|
|
||
Statutory tax rate difference between Bermuda and Ireland |
|
|
70 |
|
|
|
3.6 |
% |
Foreign tax credits |
|
|
116 |
|
|
|
6.0 |
% |
Changes in valuation allowances |
|
|
(15 |
) |
|
|
(0.8 |
)% |
Other Foreign Jurisdictions |
|
|
(52 |
) |
|
|
(2.6 |
)% |
Effect of cross-border tax laws |
|
|
(2 |
) |
|
|
(0.1 |
)% |
Changes in unrecognized tax benefits |
|
|
62 |
|
|
|
3.2 |
% |
Other adjustments |
|
|
1 |
|
|
|
0.0 |
% |
Provision for income taxes |
|
$ |
(318 |
) |
|
|
(16.3 |
)% |
The effective tax rate for the year ended December 31, 2025 includes a $79 million tax benefit adjustment related to both the final allocation of the Willis Re earnout received and a change in uncertain tax positions.
Prior to the adoption of ASU No. 2023-09, the Company disclosure of the provision for income taxes differed from the amounts that would have resulted had the reported income from operations before income taxes and interest in earnings of associates been taxed at the U.S. federal statutory rate. The principal reasons for the differences between the amounts provided and those that would have resulted from the application of the U.S. federal statutory tax rate are as follows:
|
|
Years ended December 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
INCOME FROM OPERATIONS BEFORE INCOME TAXES |
|
$ |
102 |
|
|
$ |
1,276 |
|
U.S. federal statutory income tax rate |
|
|
21.0 |
% |
|
|
21.0 |
% |
Income tax expense at U.S. federal tax rate |
|
|
(21 |
) |
|
|
(268 |
) |
Adjustments to derive effective tax rate: |
|
|
|
|
|
|
||
Non-deductible expenses and dividends |
|
|
(17 |
) |
|
|
(24 |
) |
Net adjustments on acquisition costs |
|
|
— |
|
|
|
(1 |
) |
Impact of change in rate on deferred tax balances |
|
|
— |
|
|
|
10 |
|
Effect of foreign exchange and other differences |
|
|
1 |
|
|
|
1 |
|
Changes in valuation allowances |
|
|
3 |
|
|
|
(2 |
) |
Net tax effect on intra-group items |
|
|
91 |
|
|
|
94 |
|
Net tax effect on disposal of operations |
|
|
(187 |
) |
|
|
6 |
|
Tax differentials of non-U.S. jurisdictions |
|
|
(18 |
) |
|
|
7 |
|
Impact of U.S. state and local taxes |
|
|
(2 |
) |
|
|
(26 |
) |
Global Intangible Low-Taxed Income (GILTI) |
|
|
(4 |
) |
|
|
(9 |
) |
Subpart F income |
|
|
— |
|
|
|
(5 |
) |
Base Erosion Anti-Abuse Tax (BEAT) |
|
|
(1 |
) |
|
|
13 |
|
Tax on unremitted earnings |
|
|
(5 |
) |
|
|
(12 |
) |
Changes in uncertain tax positions |
|
|
(34 |
) |
|
|
(6 |
) |
Other items, net |
|
|
2 |
|
|
|
7 |
|
Provision for income taxes |
|
$ |
(192 |
) |
|
$ |
(215 |
) |
The effective tax rate for the year ended December 31, 2024 includes a $187 million tax expense on disposal of operations. Included in the $187 million are three main components: a tax expense on the BDO goodwill impairment; a tax benefit from the capital loss incurred on the sale of TRANZACT; and a tax benefit on the Willis Re earnout in certain jurisdictions with statutory tax rates less than 21.0%. The effective tax rate for the year ended December 31, 2023 includes a $20 million tax benefit related to changes in state apportionment and a $10 million deferred tax benefit related to the remeasurement of deferred tax assets and liabilities associated with the enactment of the Bermuda corporate income tax law.
The provisions for income tax on operations for prior years have been reconciled above to the U.S. federal statutory tax rate of 21.0% due to significant operations in the U.S.
Deferred Income Taxes
Deferred income tax assets and liabilities reflect the effect of temporary differences between the assets and liabilities recognized for financial reporting purposes and the amounts recognized for income tax purposes. We recognize deferred tax assets if it is more likely than not that a benefit will be realized.
Deferred income tax assets and liabilities included in the consolidated balance sheets at December 31, 2025 and 2024 are comprised of the following:
|
|
December 31, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
Deferred tax assets: |
|
|
|
|
|
|
||
Accrued expenses not currently deductible |
|
$ |
65 |
|
|
$ |
67 |
|
Interest carryforwards |
|
|
368 |
|
|
|
334 |
|
Net operating losses |
|
|
37 |
|
|
|
27 |
|
Capital loss carryforwards |
|
|
8 |
|
|
|
119 |
|
Accrued retirement benefits |
|
|
160 |
|
|
|
156 |
|
Operating lease liabilities |
|
|
82 |
|
|
|
99 |
|
Deferred compensation |
|
|
86 |
|
|
|
90 |
|
Share-based compensation |
|
|
32 |
|
|
|
22 |
|
Financial derivative transactions |
|
|
2 |
|
|
|
3 |
|
Gross deferred tax assets |
|
|
840 |
|
|
|
917 |
|
Less: valuation allowance |
|
|
(39 |
) |
|
|
(28 |
) |
Net deferred tax assets |
|
$ |
801 |
|
|
$ |
889 |
|
Deferred tax liabilities: |
|
|
|
|
|
|
||
Cost of intangible assets, net of related amortization |
|
$ |
(402 |
) |
|
$ |
(426 |
) |
Operating lease right-of-use assets |
|
|
(74 |
) |
|
|
(82 |
) |
Cost of tangible assets, net of related depreciation |
|
|
(32 |
) |
|
|
(7 |
) |
Prepaid retirement benefits |
|
|
(95 |
) |
|
|
(106 |
) |
Accrued revenue not currently taxable |
|
|
(40 |
) |
|
|
(48 |
) |
Unremitted earnings |
|
|
(32 |
) |
|
|
(27 |
) |
Deferred tax liabilities |
|
$ |
(675 |
) |
|
$ |
(696 |
) |
Net deferred tax assets |
|
$ |
126 |
|
|
$ |
193 |
|
The net deferred income tax assets are included in Other non-current assets and the net deferred tax liabilities are included in Other non-current liabilities in our consolidated balance sheets. At December 31, 2025, the Company had a net deferred tax asset of $126 million compared to a net deferred tax asset of $193 million at December 31, 2024. The net change of $67 million is primarily related to the 2025 federal and state capital loss carryback of the 2024 capital loss generated on the sale of TRANZACT. The loss carryback was approximately $115 million on a tax-effected basis.
|
|
December 31, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
Balance sheet classifications: |
|
|
|
|
|
|
||
Other non-current assets |
|
$ |
167 |
|
|
$ |
238 |
|
Other non-current liabilities |
|
|
(41 |
) |
|
|
(45 |
) |
Net deferred tax asset |
|
$ |
126 |
|
|
$ |
193 |
|
At December 31, 2025, we had U.S. federal and non-U.S. net operating loss carryforwards amounting to $186 million of which $159 million can be indefinitely carried forward under local statutes. The remaining $27 million of net operating loss carryforwards will expire, if unused, in varying amounts from 2026 through 2045. In addition, we had U.S. state net operating loss carryforwards of $70 million, of which $22 million can be indefinitely carried forward, while the remaining $48 million will expire in varying amounts from 2026 to 2045.
Management believes, based on the evaluation of positive and negative evidence, including the future reversal of existing taxable temporary differences, it is more likely than not that the Company will realize the benefits of net deferred tax assets of $801 million, net of the valuation allowance. During 2025, the Company increased its valuation allowance by $11 million, primarily related to non-U.S. net operating losses. During 2024, the Company decreased its valuation allowance by $7 million, primarily related to state and non-U.S. net operating losses. During 2023, the Company increased its valuation allowance by $7 million, primarily related to state net operating losses and U.S. foreign tax credits.
At December 31, 2025 and 2024, the Company had valuation allowances of $39 million and $28 million, respectively, to reduce its deferred tax assets to their estimated realizable values. The valuation allowance at December 31, 2025 primarily relates to deferred taxes on U.S. state, capital and operating losses of $8 million and non-U.S. net operating losses of $24 million.
An analysis of our valuation allowance is shown below.
|
|
Years ended December 31, |
|
|||||||||
|
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
Balance at beginning of year |
|
$ |
28 |
|
|
$ |
35 |
|
|
$ |
28 |
|
Additions charged to costs and expenses |
|
|
17 |
|
|
|
7 |
|
|
|
10 |
|
Deductions |
|
|
(6 |
) |
|
|
(14 |
) |
|
|
(3 |
) |
Balance at end of year |
|
$ |
39 |
|
|
$ |
28 |
|
|
$ |
35 |
|
The movement in the 2025 valuation allowance will differ to the 2025 rate reconciliation when the movement does not meet the 5% threshold, by nature or jurisdiction. The movement in the 2024 valuation allowance differs from the 2024 rate reconciliation primarily due to changes in our state deferred tax assets as a result of the sale of our TRANZACT business. The movement in the 2023 valuation allowance differs from the 2023 rate reconciliation primarily due to the increase in state net operating losses and the related valuation allowance.
The Company recognizes deferred tax balances related to the undistributed earnings of subsidiaries when it expects that it will recover those undistributed earnings in a taxable manner, such as through receipt of dividends or sale of the investments. At December 31, 2025, the Company has $37.4 billion of undistributed earnings in subsidiaries where no deferred tax has been recognized, the majority of which can be recovered in an untaxable manner. If future events, including material changes in estimates of cash, working capital and long-term investment requirements necessitate that these earnings be distributed, a provision for income and foreign withholding taxes, net of credits, may be necessary.
Uncertain Tax Positions
At December 31, 2025, the amount of unrecognized tax benefits associated with uncertain tax positions, determined in accordance with ASC 740, Income Taxes excluding interest and penalties, was $38 million. Reconciliations of the beginning and ending balances of the liability for unrecognized tax benefits is as follows:
|
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
Balance at beginning of year |
|
$ |
80 |
|
|
$ |
51 |
|
|
$ |
47 |
|
Increases related to tax positions in prior years |
|
|
16 |
|
|
|
4 |
|
|
|
13 |
|
Decreases related to tax positions in prior years |
|
|
(45 |
) |
|
|
(2 |
) |
|
|
(9 |
) |
Increases related to tax positions in current year |
|
|
2 |
|
|
|
30 |
|
|
|
3 |
|
Decreases related to settlements |
|
|
(16 |
) |
|
|
— |
|
|
|
— |
|
Decreases related to lapse in statute of limitations |
|
|
(1 |
) |
|
|
(2 |
) |
|
|
(4 |
) |
Cumulative translation adjustment and other adjustments |
|
|
2 |
|
|
|
(1 |
) |
|
|
1 |
|
Balance at end of year |
|
$ |
38 |
|
|
$ |
80 |
|
|
$ |
51 |
|
The liability for unrecognized tax benefits for the year ended December 31, 2025 can be reduced by $1 million and 2024 and 2023 can be reduced by $3 million using offsetting deferred tax benefits associated with timing differences, foreign tax credits and the federal tax benefit of state income taxes. If these offsetting deferred tax benefits were recognized, there would be a favorable impact on our effective tax rate. There are no material balances that would result in adjustments to other tax accounts.
Interest and penalties related to unrecognized tax benefits are included as a component of income tax expense. At December 31, 2025, and 2024, we had cumulative accrued interest of $4 million and $8 million, respectively. Additionally, we had accrued penalties of $2 million for 2025. Accrued penalties were not material in 2024.
Tax expense for both the years ended December 31, 2025 and 2024 includes $1 million and $2 million, respectively, of interest expense.
The Company and its subsidiaries file income tax returns in various tax jurisdictions in which it operates.
We have ongoing state income tax examinations in certain states for tax years ranging from December 31, 2018 to December 31, 2023. The statute of limitations in certain states remains open back to the tax period ended December 31, 2018.
All U.K. tax returns have been filed timely and are in the normal process of being reviewed by His Majesty’s Revenue & Customs. The Company is not currently subject to any material examinations in other jurisdictions. A summary of the tax years that remain open to tax examination in our major tax jurisdictions is as follows:
|
Open Tax Years (fiscal year ending in) |
Ireland |
2020 and forward |
U.S. — federal |
2018 and forward |
U.S. — various states |
2018 and forward |
U.K. |
2016 and forward |
France |
2022 and forward |
Germany |
2008 and forward |
Canada — federal |
2017 and forward |
The following table summarizes cash paid for income taxes, net of refunds, for the year ended December 31, 2025:
|
|
Year ended |
|
|
Ireland |
|
$ |
4 |
|
United States |
|
|
139 |
|
United Kingdom |
|
|
109 |
|
Canada |
|
|
26 |
|
Rest of World |
|
|
163 |
|
|
|
$ |
441 |
|
For the years ended December 31, 2024 and 2023, cash paid for income taxes, net of refunds, was $312 million and $348 million, respectively.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 25, 2026 | Showing above |
| 2024 | Feb 25, 2025 | |
| 2023 | Feb 22, 2024 | |
| 2022 | Feb 24, 2023 | |
| 2021 | Feb 24, 2022 | |
| 2020 | Feb 23, 2021 | |
| 2019 | Feb 26, 2020 | |
| 2018 | Feb 27, 2019 | |
| 2017 | Feb 28, 2018 | |
| 2016 | Mar 1, 2017 | |
| 2015 | Feb 29, 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.