Keurig Dr Pepper Inc.

15. Income Taxes

Income before provision for income taxes was as follows:

The provision for income taxes has the following components:

The following tables reconcile 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:

(1)California, Tennessee, New Jersey, Florida, Illinois, and Texas comprise more than 50% of State income taxes, net.

Deferred tax assets and liabilities were comprised of the following:

CASH PAID FOR INCOME TAXES

For the year ended December 31, 2025, our cash paid for income taxes, net of refunds received, consisted of the following:

We paid $331 million and $507 million in cash for income taxes, net of refunds received, during the years ended December 31, 2024 and 2023, respectively.

CARRYFORWARDS

As of December 31, 2025 and 2024, we had $24 million and $30 million, respectively, in tax-effected net operating loss carryforwards. Of the $24 million of net operating loss carryforwards as of December 31, 2025, $21 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 December 31, 2025 and 2024, we had $5 million and $10 million of credit carryforwards, respectively. As of December 31, 2025, the $5 million of state tax credit carryforwards will begin to expire in the year 2027.

VALUATION ALLOWANCES

For the year ended December 31, 2025, the changes in our valuation allowances were insignificant.

UNDISTRIBUTED FOREIGN EARNINGS

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 2020 are closed to examination by applicable tax authorities. Canadian and Mexican income tax returns are generally open for audit for tax years 2020 and forward, and Ireland income tax returns are open for audit for tax years 2021 and forward.

Certain taxpayers may 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. During the years ended December 31, 2025, 2024, and 2023, we executed agreements with eligible taxpayers to purchase federal tax credits of $266 million, $260 million, and $270 million, respectively, which will be used against our federal tax liability. The discounts negotiated for the transfer of eligible federal tax credits of $23 million, $20 million, and $16 million were recorded as an income tax benefit in the Consolidated Statements of Income for the years ended December 31, 2025, 2024, and 2023, respectively.

On July 4, 2025, the OBBB was signed into law in the U.S., which includes a broad range of tax reform provisions. The OBBB resulted in no significant impacts to our consolidated financial statements.

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 $28 million after considering the federal impact of state income taxes.

We accrue interest and penalties on our uncertain tax positions as a component of our provision for income taxes. We recognized $5 million, $1 million, and $1 million of expense related to interest and penalties for uncertain tax positions for each of the years ended December 31, 2025, 2024, and 2023, respectively. We had a total of $9 million and $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, 2025 and 2024.