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Income Taxes | 12 Months Ended
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Dec. 31, 2024
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes For the years ended December 31, income before income taxes consisted of the following:
In millions | 2024 |  | 2023 |  | 2022
Income before income taxes |  |  |  |  |
United States | $ | 58 |  |  | $ | 35 |  |  | $ | 17 |
Foreign | 106 |  |  | 82 |  |  | 50 |
Total income before income taxes | $ | 164 |  |  | $ | 117 |  |  | $ | 67 |
For the years ended December 31, income tax expense consisted of the following:
In millions | 2024 |  | 2023 |  | 2022
Income tax expense |  |  |  |  |
Current |  |  |  |  |
Federal | $ | 32 |  |  | $ | 25 |  |  | $ | 29 |
State and local | 5 |  |  | 5 |  |  | 6 |
Foreign | 24 |  |  | 36 |  |  | 25 |
Deferred |  |  |  |  |
Federal | (9) |  |  | (12) |  |  | (21) |
State and local | (2) |  |  | (2) |  |  | (3) |
Foreign | — |  |  | 3 |  |  | (2) |
Total income tax expense | $ | 50 |  |  | $ | 55 |  |  | $ | 34 |
Effective income tax rate | 30.5 | % |  | 47.0 | % |  | 50.7 | %
The following table presents the principal components of the difference between the effective tax rate and the United States federal statutory income tax rate for the years ended December 31:
| 2024 |  | 2023 |  | 2022
Income tax expense at the U.S. federal tax rate | 21.0 | % |  | 21.0 | % |  | 21.0 | %
Foreign income tax differential | (3.2) | % |  | 1.5 | % |  | 13.0 | %
U.S. tax on foreign earnings | (0.7) | % |  | (1.7) | % |  | 2.8 | %
State and local income taxes | (1.3) | % |  | (3.2) | % |  | (4.2) | %
U.S. permanent book/tax differences | 1.8 | % |  | 3.7 | % |  | 4.8 | %
U.S. research and development tax credits | (4.2) | % |  | (6.1) | % |  | (10.4) | %
Change in valuation allowance | 10.7 | % |  | 18.6 | % |  | 18.7 | %
Argentina hyperinflationary adjustment | — | % |  | 13.1 | % |  | — | %
Tax impact of stock compensation | 4.3 | % |  | 1.7 | % |  | 3.6 | %
Tax impact of uncertain tax positions | 2.1 | % |  | (0.8) | % |  | 1.5 | %
Other, net | — | % |  | (0.8) | % |  | (0.1) | %
Effective income tax rate | 30.5 | % |  | 47.0 | % |  | 50.7 | %
The 2024 effective tax rate included a net $3 million of discrete tax expense, a majority of which related to additional tax expense from stock-based compensation vesting. The 2023 effective tax rate included a net $18 million of discrete tax expense, of which $15 million of tax expense related to the foreign currency exchange translation impact on deferred tax and tax payable balances for Teradata's Argentina operations due to hyperinflation in Argentina and $10 million of tax expense related to a valuation allowance recorded against deferred tax assets for Argentina and other reorganization and transformation activities. These were partially offset by $4 million tax benefit related to the reversal of a FIN 48 tax reserve due to the expiration of statute of limitations and $3 million of incremental tax benefit related to stock-based compensation. The 2022 effective tax rate included a net $1 million of discrete tax benefit, of which $2 million of tax benefit related to the reversal of a capital FIN 48 tax reserve due to the expiration of statute of limitations and $4 million incremental tax benefit related to stock-based compensation. These tax benefits were partially offset by $5 million of discrete tax expenses related to valuation allowances recorded against deferred tax assets and current receivables in Russia that are not expected to be realized as a result of the discontinuation of the Company's business in Russia. Deferred income tax assets and liabilities included in the balance sheets at December 31 were as follows:
In millions | 2024 |  | 2023
Deferred income tax assets |  |  |
Employee pensions and other liabilities | $ | 41 |  |  | $ | 59 |
Other balance sheet reserves and allowances | 29 |  |  | 15 |
Operating lease liabilities | 2 |  |  | 3 |
Tax loss and credit carryforwards | 115 |  |  | 109 |
Deferred revenue | 3 |  |  | 4 |
Intangibles and capitalized software | 184 |  |  | 178 |
Total deferred income tax assets | 374 |  |  | 368 |
Valuation allowance | (101) |  |  | (90) |
Net deferred income tax assets | 273 |  |  | 278 |
Deferred income tax liabilities |  |  |
Right of use assets - operating lease | 2 |  |  | 2 |
Property and equipment | 24 |  |  | 32 |
Other | 31 |  |  | 31 |
Total deferred income tax liabilities | 57 |  |  | 65 |
Total net deferred income tax assets | $ | 216 |  |  | $ | 213 |
As of December 31, 2024, Teradata had NOL and tax credit carryforwards totaling $115 million (tax effected and before any valuation allowance offset and application of recognition criteria for uncertain tax positions). Of the total tax carryforwards, $8 million are NOLs in the United States and certain foreign jurisdictions, a small portion of which will begin to expire in 2025, which have a $7 million valuation allowance offset; $19 million are United States foreign tax credit carryforwards which expire in 2029, which have a $19 million valuation allowance offset; and $88 million are California R&D tax credits that have an indefinite carryforward period, which have a $65 million valuation allowance offset and $23 million of FIN 48 reserve recorded. The Company considers a majority of its foreign earnings to not be indefinitely reinvested outside of the United States, and any distributions of profits from non-U.S. subsidiaries are not expected to cause a significant United States tax impact in the future. However, these distributions may be subject to non-U.S. withholding taxes if profits are distributed from certain jurisdictions. The Company has recorded $2 million of deferred foreign withholding tax expense with respect to certain earnings which are not considered permanently reinvested as they would be taxable upon remittance. Deferred taxes have not been provided on earnings considered indefinitely reinvested. The Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The Company reflects any interest and penalties recorded in connection with its uncertain tax positions as a component of income tax expense. As of December 31, 2024, the Company’s uncertain tax positions totaled approximately $44 million, of which $21 million is reflected in the other liabilities section of the Company’s balance sheet as a non-current liability and $23 million of uncertain tax positions relates to certain tax attributes generated by the Company, which are netted against the underlying deferred tax assets recorded on the balance sheet. The entire balance of $44 million in uncertain tax positions would cause a decrease in the effective income tax rate upon recognition. Teradata has recorded $3 million of interest accruals related to its uncertain tax liabilities as of December 31, 2024. Below is a roll-forward of the Company’s liability related to uncertain tax positions at December 31:
In millions | 2024 |  | 2023
Balance at January 1 | $ | 40 |  |  | $ | 41 |
Gross increases for prior period tax positions | 1 |  |  | 1 |
Gross increases for current period tax positions | 3 |  |  | 3 |
Decreases due to the lapse of applicable statute of limitations | — |  |  | (5) |
Balance at December 31 | $ | 44 |  |  | $ | 40 |
The Company and its subsidiaries file income tax returns in the United States and various state jurisdictions, as well as numerous foreign jurisdictions. As of December 31, 2024, the Company has ongoing tax audits related to its 2020 and 2015 U.S. Federal income tax return, as well as in a limited number of state and foreign jurisdictions. However, no material adjustments have been proposed or made in any of these examinations to date, which would result in any incremental income tax expense in future periods to the Company. The Company's tax returns for years 2021-2024 are still open for assessment by tax authorities in its major jurisdictions.

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