Cigna Group

Note 20 – Income Taxes

Accounting Policy. Deferred income taxes are reflected in the Consolidated Balance Sheets for differences between the financial and income tax reporting bases of the Company's underlying assets and liabilities, and are established based upon enacted tax rates and laws. Deferred income tax assets are recognized when available evidence indicates that realization is more likely than not, and a valuation allowance is established to the extent this standard is not met. The deferred income tax provision generally represents the net change in deferred income tax assets and liabilities during the reporting period excluding adjustments to Accumulated other comprehensive income (loss) or amounts recorded in connection with a business combination. The current income tax provision generally represents estimated amounts due on income tax returns for the year reported to various jurisdictions plus the effect of any uncertain tax positions. The Company uses the deferral method of accounting on investments that generate tax credits. Under this method, the investment tax credits are recognized as a reduction to the related asset, which are generally reported in Other assets in the Consolidated Balance Sheets. The Company recognizes a liability for uncertain tax positions if management believes the probability that the positions will be sustained is 50% or less. For uncertain positions that management believes are more likely than not to be sustained, the Company recognizes a liability based upon management's estimate of the most likely settlement outcome with the taxing authority. The liabilities for uncertain tax positions are classified as current when the position is expected to be settled within 12 months or the statute of limitation expires within 12 months.

Income taxes attributable to the Company's foreign operations are generally provided using the respective foreign jurisdictions' tax rate.

A. Income Tax Expense

The components of income taxes were as follows:

Total income taxes were different from the amount computed using the nominal federal income tax rate for the following reasons:

Consolidated pre-tax income from the Company's foreign operations was approximately 62% of the Company's pre-tax income in 2024,48% in 2023 and 46% in 2022. The increase over 2023 is primarily attributable to a reduction in domestic earnings driven by the current-year impairment of equity securities (discussed below).

Investment Tax Credits. Company investments in renewable energy projects provided $1,057 million, $453 million and $129 million of investment tax credits for the years ended December 31, 2024, 2023 and 2022, respectively. The Company accounted for the tax credits using the deferral method and accordingly reduced the associated carrying value of the related assets by these amounts.

Impairment of Equity Securities. In 2024, the Company recorded a deferred tax benefit of $636 million and an equal amount of valuation allowance in connection with the impairment of equity securities. The valuation allowance had the effect of increasing the Company's effective tax rate.

B. Deferred Income Taxes

Deferred income tax assets and liabilities were as follows:

(1)Deferred tax liabilities, net in the Consolidated Balance Sheets as of December 31, 2024, excludes $954 million reported in Other assets and $61 million reported in liabilities of businesses held for sale. Deferred tax liabilities, net in the Consolidated Balance Sheets as of December 31, 2023, excludes $1,055 million reported in Other assets and $69 million reported in liabilities of businesses held for sale.

Management believes that future results will be sufficient to realize the Company's gross deferred tax assets ("DTAs") that remain after valuation allowance. Valuation allowances have been established against certain federal, state and foreign tax attributes. There are multiple expiration dates associated with these tax attributes.

As of December 31, 2024, the Company had approximately $880 million in DTAs associated with the impairment of equity securities and other unrealized investment losses (See Note 11). As discussed above, a valuation allowance of $636 million has been established against the DTAs related to the impairment of equity securities. We have determined that a valuation allowance against the remaining DTAs is not currently required based on the Company's loss carryback capacity and ability and intent to hold certain investment securities until recovery.

Foreign Jurisdiction Tax Attributes. As of both December 31, 2024 and 2023, the Company had DTAs of approximately $1.8 billion associated with foreign tax law changes and agreements in certain tax jurisdictions and a related $772 million valuation allowance against these deferred tax assets based on projections of future earnings and requirements to utilize the assets within certain time periods. It is possible in future periods that the Company may revalue these net deferred tax assets due to modifications in certain assumptions, such as forecasted future earnings.

Sale of Medicare Advantage and Related Businesses. As of December 31, 2024 and 2023, the Company has recorded $773 million and $584 million, respectively, of deferred tax benefits and a valuation allowance of $715 million and $584 million, respectively, in connection with the HCSC transaction. The valuation allowance has been recorded due to the uncertainty relative to the recovery of the deferred tax benefits as the Company does not anticipate having capital gain capacity to offset these capital losses.

C. Uncertain Tax Positions

Reconciliations of unrecognized tax benefits were as follows:

Substantially all unrecognized tax benefits would increase Shareholders' net income if recognized.

The Company classifies net interest expense on uncertain tax positions as a component of income tax expense and in Other non-current liabilities in the Consolidated Balance Sheets. In addition to the amounts in the table above, the liability for net interest expense on uncertain tax positions was approximately $228 million, $220 million and $176 million as of December 31, 2024, December 31, 2023 and December 31, 2022, respectively.

D. Other Tax Matters

The statutes of limitations for the Company's consolidated federal income tax returns through 2016 have closed. The statute of limitations for the Company's 2020 tax return has also closed. However, The Cigna Group filed amended returns for both the 2015 and 2016 tax years, which are under review by the Internal Revenue Service ("IRS"). Additionally, the IRS is examining the Company's returns for 2017 and 2018. The IRS has examined Express Scripts' tax returns for 2010 through 2018, for which there remains significant disputed matters. In addition, the Company has pending refund claims for various years. The Company has established adequate reserves for these matters.

The Company conducts business in a number of state and foreign jurisdictions and may be engaged in multiple audit proceedings at any given time. Generally, no further state or foreign audit activity is expected for tax years prior to 2013 for Express Scripts entities and 2014 for all other entities of The Cigna Group.

Pillar Two. On December 15, 2022, the European Union ("EU") Member States formally adopted the EU's Pillar Two Directive, which generally provides for a minimum effective tax rate of 15%, as established by the Organization for Economic Co-operation and Development ("OECD") Pillar Two Framework that was supported by over 130 countries worldwide. The EU effective dates are January 1, 2024 and January 1, 2025, for different aspects of the directive. A significant number of other countries are also implementing similar legislation, and the OECD continues to release additional guidance on these rules. The Company is within the scope of the OECD Pillar Two model rules and continues to evaluate the potential impact on future periods of the Pillar Two Framework.