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Income Taxes | 12 Months Ended
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Mar. 31, 2026
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes
| Years Ended March 31,
(In millions) | 2026 |  | 2025 |  | 2024
Income from continuing operations before income taxes |  |  |  |  |
U.S. | $ | 4,300 |  |  | $ | 3,735 |  |  | $ | 2,597 |
Foreign | 1,901 |  |  | 624 |  |  | 1,192 |
Income from continuing operations before income taxes | $ | 6,201 |  |  | $ | 4,359 |  |  | $ | 3,789 |
Income tax expense related to continuing operations consists of the following:
| Years Ended March 31,
(In millions, except percentages) | 2026 |  | 2025 |  | 2024
Current |  |  |  |  |
Federal | $ | 437 |  |  | $ | 552 |  |  | $ | 867 |
State | 217 |  |  | 182 |  |  | 231 |
Foreign | 218 |  |  | 254 |  |  | 134 |
Total current | 872 |  |  | 988 |  |  | 1,232 |
Deferred |  |  |  |  |
Federal | 248 |  |  | 102 |  |  | (360) |
State | 57 |  |  | 5 |  |  | (133) |
Foreign | (75) |  |  | (217) |  |  | (110) |
Total deferred | 230 |  |  | (110) |  |  | (603) |
Income tax expense | $ | 1,102 |  |  | $ | 878 |  |  | $ | 629 |
Reported income tax rate | 17.8 | % |  | 20.1 | % |  | 16.6 | %
Fluctuations in the Company’s reported income tax rates are primarily due to changes in the business mix of earnings between various taxing jurisdictions, including the impact of non-cash pre-tax charges related to the remeasurement of the Canadian retail disposal group to fair value less costs to sell as described in Financial Note 2, “Business Acquisitions and Divestitures,” and recognized discrete tax items. The Company adopted ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosure s using a prospective transition method in the current fiscal year. The following table presents a reconciliation of the U.S. federal statutory income tax rate to the Company’s effective tax rate for the year ended March 31, 2026, in accordance with ASU 2023-09.
| Year Ended March 31, 2026 |  |
(In millions, except percentages) | Amount |  | Percent |  |
U.S. federal statutory tax rate | $ | 1,302 |  |  | 21.0 | % |  |
State and local income taxes, net of federal income tax effect (1) | 213 |  |  | 3.4 |  |  |
Foreign tax effects |  |  |  |  |
Luxembourg |  |  |  |  |
Valuation allowance release | (119) |  |  | (1.9) |  |  |
Other | 2 |  |  | 0.0 |  |  |
Germany |  |  |  |  |
Divestiture of investment | (99) |  |  | (1.6) |  |  |
Other foreign jurisdictions | (26) |  |  | (0.4) |  |  |
Effect of cross-border tax laws (2) | (30) |  |  | (0.5) |  |  |
Tax credits (2) | (27) |  |  | (0.4) |  |  |
Nontaxable or nondeductible items | (21) |  |  | (0.3) |  |  |
Changes in unrecognized tax benefits (2) | 65 |  |  | 1.0 |  |  |
Other adjustments |  |  |  |  |
Liquidation of investment | (158) |  |  | (2.5) |  |  |
Effective tax rate | $ | 1,102 |  |  | 17.8 | % |  |
(1)State income taxes in California, Illinois, New Jersey, Oregon and Pennsylvania represented the majority (greater than 50%) of the tax effect within this category. (2)Reconciling items are presented on a gross basis, except for cross-border tax effects, tax credits and changes in unrecognized tax benefits (“UTBs”). Income tax expense related to continuing operations for the years ended March 31, 2025 and 2024, prior to the adoption of ASU 2023-09, is reconciled from the U.S. federal statutory income tax rate to the Company’s effective income tax rate as follows:
|  |  | Years Ended March 31,
(In millions) |  |  | 2025 |  | 2024
Income tax expense at federal statutory rate |  |  | $ | 915 |  |  | $ | 796 |
State income taxes, net of federal tax benefit |  |  | 145 |  |  | 104 |
Tax effect of foreign operations |  |  | (25) |  |  | (16) |
Foreign-derived intangible income |  |  | (83) |  |  | (67) |
Unrecognized tax benefits and settlements |  |  | 91 |  |  | 116 |
Net tax benefit on intellectual property repatriation and sales |  |  | (258) |  |  | (104) |
Canadian disposal transaction loss |  |  | 140 |  |  | — |
Valuation allowance release |  |  | — |  |  | (157) |
Share-based compensation |  |  | (42) |  |  | (37) |
Other, net |  |  | (5) |  |  | (6) |
Income tax expense |  |  | $ | 878 |  |  | $ | 629 |
On January 30, 2026, the Company completed the previously announced sale of its retail and distribution businesses in Norway as part of its exit from European activities, as described in Financial Note 2, “Business Acquisitions and Divestitures.” The transaction did not result in a material income tax liability for either the Norwegian subsidiary or its German parent entity. Consequently, the Company’s effective income tax rate for fiscal 2026 was favorably impacted by this transaction. During the year ended March 31, 2026, the Company recognized a U.S. federal tax benefit of $158 million related to the impact of the liquidation of its investment in a wholly-owned affiliate. During the year ended March 31, 2026, the Company also recognized a tax benefit of $119 million related to the release of a valuation allowance in a foreign jurisdiction based on management’s reassessment of the amount of its deferred tax assets that are more likely than not to be realized. In evaluating the realizability of deferred tax assets, the Company considers all available evidence, both positive and negative, as of each reporting date. As of March 31, 2026, the Company concluded that sufficient positive evidence existed to support the realization of these deferred tax assets and reduced the valuation allowance accordingly. During the year ended March 31, 2025, the Company recognized a tax benefit of $258 million related to the sale of certain intellectual property between McKesson wholly-owned legal entities based in foreign tax jurisdictions. The transferor entities of the intellectual property were not subject to income tax on their transaction. The recipient entities of the intellectual property are entitled to amortize the fair value of the assets for tax purposes. As a result of these transactions, and in accordance with ASU 2016-16, Intra-Entity Transfers of Assets Other Than Inventory, net discrete tax benefits of $44 million and $214 million were recognized in the second and fourth quarters of fiscal 2025, respectively. During the year ended March 31, 2024, the Company recognized a tax benefit of $157 million related to the release of a valuation allowance based on management’s reassessment of the amount of its deferred tax assets that are more likely than not to be realized. During the year ended March 31, 2024, the Company also repatriated certain intellectual property between McKesson wholly-owned legal entities that are based in different tax jurisdictions. The transferor entity of the intellectual property was not subject to income tax on this transaction. The recipient entity of the intellectual property is entitled to amortize the fair value of the assets for tax purposes. As a result of this repatriation and in accordance with ASU 2016-16, Intra-Entity Transfers of Assets Other Than Inventory, a net discrete tax benefit of $147 million was recognized in the first quarter of fiscal 2024. In addition, the Company sold certain intellectual property between McKesson wholly-owned legal entities that are based in different tax jurisdictions, where the transferor entity was subject to income tax and the recipient entity is entitled to amortize the fair value of the assets for tax purposes. As a result of this sale, a net discrete tax expense of $43 million was recognized in the fourth quarter of fiscal 2024. On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted into law, introducing modifications to various U.S. federal tax provisions. The Company has evaluated the implications of the legislation and concluded that the provisions of the OBBBA are not expected to have a material impact on its Consolidated Financial Statements. Deferred tax balances consisted of the following:
| March 31,
(In millions) | 2026 |  | 2025
Assets |  |  |
Receivable allowances | $ | 69 |  |  | $ | 136 |
Opioid-related litigation and claims | 623 |  |  | 680 |
Compensation and benefit-related accruals | 333 |  |  | 287 |
Loss and credit carryforwards | 996 |  |  | 847 |
Lease obligations | 429 |  |  | 423 |
Other | 194 |  |  | 236 |
Subtotal | 2,644 |  |  | 2,609 |
Less: valuation allowance | (769) |  |  | (644) |
Total assets | 1,875 |  |  | 1,965 |
Liabilities |  |  |
Inventory valuation and other assets | (2,008) |  |  | (2,139) |
Fixed assets | (303) |  |  | (4) |
Lease right-of-use assets | (432) |  |  | (434) |
Other | (30) |  |  | (50) |
Total liabilities | (2,773) |  |  | (2,627) |
Net deferred tax liability | $ | (898) |  |  | $ | (662) |
Long-term deferred tax asset | $ | 432 |  |  | $ | 367 |
Long-term deferred tax liability | (1,330) |  |  | (1,029) |
Net deferred tax liability | $ | (898) |  |  | $ | (662) |
The Company assesses the available positive and negative evidence to determine whether deferred tax assets are more likely than not to be realized. As a result of this assessment, valuation allowances have been recorded on certain deferred tax assets in various tax jurisdictions. The valuation allowances were approximately $769 million and $644 million in fiscal 2026 and fiscal 2025, respectively, and primarily relate to net operating and capital losses. The Company has federal, state, and foreign net operating loss carryforwards of $53 million, $4.0 billion, and $1.2 billion at March 31, 2026, respectively. Federal and state net operating losses will expire at various dates from 2027 through 2046. Substantially all its foreign net operating losses have indefinite lives. In addition, the Company has federal, state and foreign capital loss carryforwards of $801 million, $1.4 billion and $1.2 billion at March 31, 2026, respectively, with various expiration dates beginning in 2031. Cash paid for income taxes, net of refunds received, by jurisdiction pursuant to the disclosure requirements of ASU 2023‑09 for the year ended March 31, 2026 was as follows:
| Year Ended March 31,
(In millions) | 2026
U.S. Federal | $ | 839 |
U.S. States | 131
Foreign |
Canada | 114
United Kingdom | 103
Others | 24
Total cash taxes paid, net of refunds | $ | 1,211 |
The following table summarizes the activity related to the Company’s gross unrecognized tax benefits for the last three fiscal years:
| Years Ended March 31,
(In millions) | 2026 |  | 2025 |  | 2024
Unrecognized tax benefits at beginning of period | $ | 1,532 |  |  | $ | 1,463 |  |  | $ | 1,399 |
Additions based on tax positions related to prior years | 30 |  |  | 33 |  |  | 10 |
Reductions based on tax positions related to prior years | (5) |  |  | (43) |  |  | (2) |
Additions based on tax positions related to current year | 36 |  |  | 97 |  |  | 64 |
Reductions based on settlements | — |  |  | (13) |  |  | (8) |
Reductions based on the lapse of the applicable statutes of limitations | (20) |  |  | (7) |  |  | (2) |
Exchange rate fluctuations | 1 |  |  | 2 |  |  | 2 |
Unrecognized tax benefits at end of period | $ | 1,574 |  |  | $ | 1,532 |  |  | $ | 1,463 |
As of March 31, 2026, the Company had $1.6 billion in unrecognized tax benefits, of which $1.5 billion would reduce income tax expense and the effective tax rate, if recognized. The increase in unrecognized tax benefits in both fiscal 2026 and fiscal 2025 primarily relate to additions associated with recurring items. During the fourth quarter of fiscal 2023, the Internal Revenue Service (“IRS”) communicated proposed adjustments to taxable income reported in the Company’s fiscal 2018 and fiscal 2019 U.S. Federal Corporate Income Tax returns. The adjustments would increase the Company’s federal income tax liability, excluding any applicable interest, in the range of $600 million to $700 million. The Company disagrees with the proposed adjustments and intends to pursue resolution through the administrative process with the IRS Independent Office of Appeals and, if necessary, through judicial remedies. During the first quarter of fiscal 2024, the Company filed a formal protest with the IRS. Although the final resolution of these matters is uncertain, the Company believes in the merits of its tax positions and believes that it has adequately reserved for any adjustments to the provision of income taxes that may ultimately result. However, if the IRS prevails in these matters, the assessed tax and interest could have a material adverse effect on the Company’s financial position, results of operations, and cash flows in future periods. The Company reports interest and penalties on income taxes as income tax expense. It recognized income tax expense of $74 million, $80 million, and $84 million in fiscal 2026, fiscal 2025, and fiscal 2024, respectively, representing interest and penalties, in its Consolidated Statements of Operations. As of March 31, 2026 and 2025, the Company accrued cumulatively $376 million and $302 million, respectively, in interest and penalties on unrecognized tax benefits in its Consolidated Balance Sheets. The Company files income tax returns in the U.S. federal jurisdiction, various U.S. state jurisdictions, and various foreign jurisdictions. The Company is generally subject to audit by taxing authorities in various U.S. states and in foreign jurisdictions for fiscal 2016 through the current fiscal year. Undistributed earnings of the Company’s foreign operations of approximately $3.7 billion were considered indefinitely reinvested on March 31, 2026. Following the enactment of the 2017 Tax Act, the repatriation of cash to the U.S. is generally no longer taxable for federal income tax purposes. However, the repatriation of cash held outside the U.S. could be subject to applicable foreign withholding taxes and state income taxes. The Company may remit foreign earnings to the U.S. to the extent it is tax efficient to do so. It does not expect the tax impact from remitting these earnings to be material.

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