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Income Taxes | 12 Months Ended
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Dec. 31, 2024
Income Tax Disclosure [Abstract] |
Income Taxes | NOTE 12: INCOME TAXES Income Before Income Taxes. The sources of income from continuing operations before income taxes are:
(dollars in millions) | 2024 |  | 2023 |  | 2022
United States (1) | $ | 3,016 |  |  | $ | 938 |  |  | $ | 4,151 |
Foreign | 3,178 |  |  | 2,898 |  |  | 1,966 |
Income from continuing operations before income taxes | $ | 6,194 |  |  | $ | 3,836 |  |  | $ | 6,117 |
(1) 2023 includes the impacts of the Powder Metal Matter. The Company intends to repatriate certain undistributed earnings of its international subsidiaries that have been previously taxed in the U.S. As such, we recorded the taxes associated with the future remittance of these earnings. For the remainder of the Company’s undistributed international earnings, unless tax effective to repatriate, the Company will continue to permanently reinvest these earnings. As of December 31, 2024, such undistributed earnings were approximately $23 billion, excluding other comprehensive income amounts. It is not practicable to estimate the amount of tax that might be payable on the remaining amounts. Provision for Income Taxes. The income tax expense (benefit) for the years ended December 31 are as follows:
(dollars in millions) | 2024 |  | 2023 |  | 2022
Current: |  |  |  |  |
United States: |  |  |  |  |
Federal | $ | 443 |  |  | $ | 213 |  |  | $ | 1,724 |
State | 179 |  |  | 70 |  |  | 216 |
Foreign | 606 |  |  | 575 |  |  | 513 |
| 1,228 |  |  | 858 |  |  | 2,453 |
Future: |  |  |  |  |
United States: |  |  |  |  |
Federal | (13) |  |  | (411) |  |  | (1,399) |
State | 71 |  |  | (53) |  |  | (166) |
Foreign | (105) |  |  | 62 |  |  | (98) |
| (47) |  |  | (402) |  |  | (1,663) |
Income tax expense | $ | 1,181 |  |  | $ | 456 |  |  | $ | 790 |
Prior to 2022, research and experimental expenditures were generally deductible in the period incurred. A provision enacted in the Tax Cuts and Jobs Act of 2017 related to the capitalization of research and experimental expenditures for tax purposes became effective on January 1, 2022. In September and December 2023, the IRS issued interim guidance, retroactive to 2022, clarifying the capitalization requirements for certain types of research and experimental expenditures. The IRS notices also provide that the Department of the Treasury and the IRS intend to issue proposed regulations consistent with the guidance set forth in the notices and that taxpayers may rely on the guidance in the notices prior to the issuance of the proposed regulations. The Company’s analysis determined the guidance provided in the notices results in fewer costs being subject to capitalization, and as such, costs previously required to be capitalized are now deductible in the year incurred. The Company will review the proposed regulations when issued and adjust the estimates as necessary. Reconciliation of Effective Income Tax Rate. Differences between effective income tax rates and the statutory U.S. federal income tax rate are as follows:
| 2024 |  | 2023 |  | 2022
(dollars in millions) | Amount | Rate |  | Amount | Rate |  | Amount | Rate
Statutory U.S. federal income tax rate | $ | 1,301 |  | 21.0 | % |  | $ | 805 |  | 21.0 | % |  | $ | 1,285 |  | 21.0 | %
Tax on international activities | 6 |  | 0.1 |  |  | (27) |  | (0.7) |  |  | (186) |  | (3.1) |
Disposals of businesses | 126 |  | 2.0 |  |  | — |  | — |  |  | — |  | — |
U.S. research and development credit | (188) |  | (3.0) |  |  | (168) |  | (4.4) |  |  | (164) |  | (2.7) |
U.S. federal audit settlements and statute lapse | (277) |  | (4.5) |  |  | (59) |  | (1.5) |  |  | — |  | — |
State income tax, net | 187 |  | 3.0 |  |  | 17 |  | 0.4 |  |  | 59 |  | 1.0 |
Foreign Derived Intangible Income (FDII) | (126) |  | (2.0) |  |  | (142) |  | (3.7) |  |  | (214) |  | (3.5) |
Non-deductible legal charges (1) | 148 | 2.4 |  |  | 5 |  | 0.1 |  |  | — |  | — |
Other | 4 |  | 0.1 |  |  | 25 |  | 0.7 |  |  | 10 |  | 0.2 |
Effective income tax rate | $ | 1,181 |  | 19.1 | % |  | $ | 456 |  | 11.9 | % |  | $ | 790 |  | 12.9 | %
(1) 2024 includes the impact of certain non-deductible legal charges related to the Resolution of Certain Legal Matters. See “Note 17: Commitments and Contingencies” for additional information. The 2024 effective tax rate includes tax benefits of $275 million resulting from the conclusion of the examination phases of the U.S. federal income tax audits for RTX 2017 and 2018 tax years and Rockwell Collins 2016, 2017, and 2018 tax years, $188 million associated with U.S. research and development credits, $126 million related to the FDII benefit, and a $138 million deferred tax benefit associated with legal entity reorganizations. In addition, the effective tax rate includes $224 million of tax expense associated with the 2024 dispositions. Also included in the effective tax rate is a $212 million tax charge related to U.S. federal income taxes now owed by the Company resulting from a favorable non-U.S. tax ruling Otis received in 2024. The ruling Otis received reduces U.S. foreign tax credits previously claimed by the Company in pre-separation tax years. The Company also recognized a $56 million tax benefit in response to favorable U.S. Tax Court rulings issued to unrelated taxpayers, but with similar facts as ours. Both of these items are subject to a tax matters agreement entered into with Carrier and Otis in connection with the separations of those businesses in 2020. Accordingly, the Company recorded a pre-tax benefit of $212 million for a portion of the indemnity owed by Otis to the Company for the reduction in foreign taxes in the pre-separation years and a pre-tax charge of $32 million for the indemnified amounts payable to Carrier and Otis associated with the $56 million tax benefit. Additionally, the Company is indemnified by Otis for the associated interest related to the Otis non-US ruling. The 2023 effective tax rate includes a benefit of $168 million associated with U.S. research and development credits, $142 million related to the FDII benefit, and a federal tax benefit of $59 million associated with the expiration of the U.S. federal income tax statute of limitations for RTX’s 2019 tax year. The 2022 effective tax rate includes a benefit of $214 million related to the FDII benefit, $207 million associated with legal entity and operational reorganizations implemented in 2022, and $164 million associated with U.S. research and development credits. Deferred Tax Assets and Liabilities. The tax effects of temporary differences and tax carryforwards which gave rise to future income tax benefits and payables at December 31, 2024 and 2023 are as follows:
(dollars in millions) | 2024 |  | 2023
Future income tax benefits: |  |  |
Insurance and employee benefits | $ | 897 |  |  | $ | 994 |
Inventory and contract balances | — |  |  | 571 |
Warranty provisions | 221 |  |  | 240 |
Capitalization of research and experimental expenditures | 2,208 |  |  | 1,631 |
Other basis differences | 1,060 |  |  | 779 |
Powder Metal Matter | 455 |  |  | 644 |
Tax loss carryforwards | 1,055 |  |  | 905 |
Tax credit carryforwards | 800 |  |  | 891 |
Valuation allowances | (1,439) |  |  | (1,465) |
Total future income tax benefits | $ | 5,257 |  |  | $ | 5,190 |
Future income taxes payable: |  |  |
Goodwill and Intangible assets | $ | 5,675 |  |  | $ | 6,228 |
Fixed assets | 1,614 |  |  | 1,739 |
Inventory and contract balances | 193 |  |  | — |
Other basis differences | 627 |  |  | 238 |
Total future income tax payable | $ | 8,109 |  |  | $ | 8,205 |
Valuation allowances have been established primarily for tax credit carryforwards, tax loss carryforwards, and certain temporary differences to reduce the future income tax benefits to expected realizable amounts. Changes to valuation allowances consisted of the following:
(dollars in millions) | 2024 |  | 2023 |  | 2022
Balance at January 1 | $ | 1,465 |  |  | $ | 842 |  |  | $ | 825 |
Additions charged to income tax expense | 228 |  |  | 170 |  |  | 54 |
Reductions credited to income tax expense | (239) |  |  | (58) |  |  | (82) |
Other adjustments (1) | (15) |  |  | 511 |  |  | 45 |
Balance at December 31 | $ | 1,439 |  |  | $ | 1,465 |  |  | $ | 842 |
(1) 2023 includes the addition of the indefinite-lived tax loss carryforwards now disclosed in connection with Organisation for Economic Co-operation and Development (OECD) Pillar Two. Tax Credit and Loss Carryforwards. At December 31, 2024, tax credit carryforwards, principally state and foreign, and tax loss carryforwards, principally state and foreign, were as follows:
(dollars in millions) | Tax Credit Carryforwards |  | Tax Loss Carryforwards
Expiration period: |  |  |
2025-2029 | $ | 56 |  |  | $ | 327 |
2030-2034 | 37 |  |  | 137 |
2035-2044 | 201 |  |  | 1,255 |
Indefinite | 506 |  |  | 3,823 |
Total | $ | 800 |  |  | $ | 5,542 |
Unrecognized Tax Benefits. At December 31, 2024, we had gross tax-effected unrecognized tax benefits of $1,263 million, of which $1,254 million, if recognized, would impact the effective tax rate. A reconciliation of the beginning and ending amounts of unrecognized tax benefits and interest expense related to unrecognized tax benefits for the years ended December 31, 2024, 2023, and 2022 is as follows:
(dollars in millions) | 2024 |  | 2023 |  | 2022
Balance at January 1 | $ | 1,442 |  |  | $ | 1,515 |  |  | $ | 1,458 |
Additions for tax positions related to the current year | 84 |  |  | 89 |  |  | 106 |
Additions for tax positions of prior years | 164 |  |  | 5 |  |  | 23 |
Reductions for tax positions of prior years | (13) |  |  | (141) |  |  | (56) |
Settlements | (414) |  |  | (26) |  |  | (16) |
Balance at December 31 | $ | 1,263 |  |  | $ | 1,442 |  |  | $ | 1,515 |
Gross interest expense related to unrecognized tax benefits | $ | 127 |  |  | $ | 62 |  |  | $ | 34 |
Total accrued interest balance at December 31 | 255 |  |  | 233 |  |  | 190 |
We conduct business globally and, as a result, RTX or one or more of our subsidiaries files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normal course of business, we are subject to examination by taxing authorities throughout the world, including such major jurisdictions as Canada, China, France, Germany, India, Poland, Saudi Arabia, Singapore, Switzerland, the United Kingdom, and the United States. With few exceptions, we are no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations for years before 2014. The Company filed protests with respect to certain IRS proposed adjustments for RTX (formerly United Technologies Corporation) tax years 2017 and 2018, pre-acquisition Rockwell Collins tax years 2016, 2017, and 2018, and pre-merger Raytheon Company tax years 2017, 2018, and 2019 as well as certain refund claims of Raytheon Company for tax years 2014, 2015, and 2016 filed prior to the Raytheon merger. The Company will dispute these adjustments at the Appeals Division of the IRS. The timing of any resolution at the Appeals Division is uncertain. On January 15, 2025, the IRS notified the Company of its intent to close the examination of RTX’s 2020 tax year. On January 7, 2025, the Appeals Committee of the Kingdom of Saudi Arabia (KSA) General Services Tax Committee (GSTC) issued an unfavorable decision to Raytheon Middle East Systems Company, Saudi Arabia branch (RAYMES Branch) with respect to income tax and withholding tax assessments for the years ended December 31, 2015 to December 31, 2019. As a result of the unfavorable decision, RAYMES Branch has been assessed tax and delay fines of approximately $230 million due in 2025, with an estimated Net income charge of $30 million to $50 million. The Company and RAYMES Branch continue to believe the position of the KSA tax authority is not supported by the facts in question or KSA tax law, and plan to pursue available options to seek reversal of GSTC’s decision. In the ordinary course of business, there is inherent uncertainty in quantifying our income tax positions. We assess our income tax positions and record tax benefits for all years subject to examination based upon management’s evaluation of the facts, circumstances, and information available at the reporting date. It is reasonably possible that over the next 12 months the amount of unrecognized tax benefits may change within a range of a net reduction of $200 million to a net increase of $25 million as a result of the revaluation of uncertain tax positions arising from developments in examinations, in appeals, or in the courts, or the closure of tax statutes.

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