Keurig Dr Pepper Inc

14. Income Taxes

Income before provision for income taxes was as follows:

The provision for income taxes has the following components:

The following is a reconciliation of the provision for income taxes computed at the U.S. federal statutory tax rate to the provision for income taxes reported in the Consolidated Statements of Income:

Deferred tax assets and liabilities were comprised of the following:

CARRYFORWARDS

As of December 31, 2024 and 2023, we had $30 million and $36 million, respectively, in tax-effected net operating loss carryforwards. Of the $30 million of net operating loss carryforwards as of December 31, 2024, $27 million will not expire, $1 million related to state income tax will begin to expire in 2027, and the remaining $2 million related to foreign income tax will begin to expire in the year 2035.

As of both December 31, 2024 and 2023, we had $10 million of credit carryforwards. As of December 31, 2024, the $10 million of state tax credit carryforwards will begin to expire in the year 2027.

VALUATION ALLOWANCES

For the tax year ended December 31, 2024, the Company recognized a net decrease of$26 million in its valuation allowances, primarily due to net decreases in the deferred tax assets and related valuation allowances on certain equity method investments.

UNDISTRIBUTED FOREIGN EARNINGS

For the tax year ended December 31, 2024, undistributed earnings in foreign subsidiaries for which no deferred taxes have been provided totaled approximately $879 million. An actual repatriation from our foreign subsidiaries could still be subject to additional foreign withholding taxes. We have analyzed our global working capital and cash requirements and continue to be indefinitely reinvested in our undistributed earnings, except for amounts in excess of our working capital and cash requirements. We have recorded any potential withholding tax liabilities, if necessary, attributable to repatriation.

OTHER TAX MATTERS

We file income tax returns for U.S. federal purposes and in various state jurisdictions. We also file income tax returns in various foreign jurisdictions, principally Canada, Ireland, Mexico, and Singapore. The U.S. and most state income tax returns for years prior to 2019 are closed to examination by applicable tax authorities. Canadian and Mexican income tax returns are generally open for audit for tax years 2019 and forward, and Ireland income tax returns are open for audit for tax years 2020 and forward.

We previously had a tax holiday in Singapore, which was effective through June 2024, whereby the local statutory rate is significantly reduced if certain conditions are met. The impact of the tax holiday increased net income by approximately $2 million, $4 million, and $6 million for the years ended December 31, 2024, 2023, and 2022, respectively, resulting in no impact to basic and diluted EPS for each of the years ended December 31, 2024, 2023, and 2022.

On August 16, 2022, the IRA was signed into law in the United States. The IRA added new tax provisions allowing certain taxpayers to elect to transfer an eligible credit to an unrelated transferee taxpayer where the transferee taxpayer is then able to use the transferred tax credit against its own taxable income for taxable years after December 31, 2022. During the years ended December 31, 2024 and 2023, we executed agreements with eligible taxpayers to purchase federal tax credits of $260 million and $270 million, respectively, which will be used against KDP’s federal tax liability. The discounts negotiated for the transfer of eligible federal tax credits of $20 million and $16 million were recorded as an income tax benefit on the Consolidated Statements of Income for the years ended December 31, 2024 and 2023, respectively.

UNRECOGNIZED TAX BENEFITS

The following is a reconciliation of the changes in the gross balance of unrecognized tax benefits:

The total amount of unrecognized tax benefits that would reduce the effective tax rate if recognized is $10 million after considering the federal impact of state income taxes. KDP does not expect a significant change to its unrecognized tax benefits, but it is reasonably possible that a change in the unrecognized tax benefits may occur within the next twelve months related to the settlement of audits or the lapse of applicable statutes of limitations.

KDP accrues interest and penalties on its uncertain tax positions as a component of its provision for income taxes. We recognized $1 million of expense related to interest and penalties for uncertain tax positions for each of the years ended December 31, 2024 and 2023 andno expense for the year ended December 31, 2022. We had a total of $3 million accrued for interest and penalties for our uncertain tax positions reported as part of other non-current liabilities as of both December 31, 2024 and 2023.