INCOME TAXES

12 Months Ended

Dec. 31, 2025

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The components of deferred tax assets and liabilities as of December 31, 2025 and 2024, are as follows:


(in millions)	2025		2024
DEFERRED TAX LIABILITIES:
Accelerated depreciation	$	3,655	$	3,351
Prepaid insurance	329		282
Operating lease right-of-use assets	249		314
Other	99		99
Total deferred tax liabilities	4,332		4,046
DEFERRED TAX ASSETS:
Accrued employee benefits	356		337
Loyalty program and flight credit liability	540		604
Operating lease liabilities	252		319
Net operating losses and tax credits (a)	644		352
Other	260		267
Valuation allowance	(9)		—
Total deferred tax assets	2,043		1,879
Net deferred tax liability	$	2,289	$	2,167

(a) As of December 31, 2025 and 2024, the Company had approximately $66 million and $56 million, respectively, of state net operating loss carryforwards (tax effected) to reduce future state taxable income. These state net operating loss carryforwards will expire in years 2026 through 2046 if unused. As of December 31, 2025 and 2024, the Company had $504 million and $253 million, respectively, of federal net operating loss carryforwards (tax effected) that may be carried forward indefinitely. As of December 31, 2025 and 2024, the Company had $75 million and $53 million, respectively, of federal research and development tax credit carryforwards subject to expiration beginning in 2043 if unused.

A valuation allowance is recorded when it is more likely than not that some portion of deferred tax assets will not be realized. During 2025, the Company established deferred tax assets related to Texas research and development tax credits. The gross deferred tax asset totaled $13 million, of which approximately $12 million is not expected to be realized based on current projections of taxable income and applicable utilization limitations. Accordingly, as of December 31, 2025, the Company recorded a valuation allowance of approximately $12 million against these assets. The change in the valuation allowance during the year reflects the initial recognition of the deferred tax assets and updated assessments of future utilization.

Foreign pretax income, income tax expense, and income taxes paid were immaterial for all periods presented. As a result, foreign amounts have not been separately disaggregated.

The provision (benefit) for income taxes is composed of the following:


(in millions)	2025		2024		2023
CURRENT:
Federal	$	(2)	$	—	$	(10)
State	2		1		19
Total current	—		1		9
DEFERRED:
Federal	107		108		140
State	15		24		19
Total deferred	122		132		159
Income tax provision	$	122	$	133	$	168

The following table presents the differences between the Company's income tax provision and the amounts computed at the federal statutory income tax rate, on both a dollar and percentage basis:


(dollars in millions)	2025				2024				2023
U.S. federal statutory tax	$	118	21.0	%	$	126	21.0	%	$	133	21.0	%
State and local income taxes, net of federal income tax effect (1)	13		2.3	%	20		3.3	%	30		4.7	%
Foreign tax effects	—		—	%	—		—	%	—		—	%
Effect of changes in tax laws or rates enacted in the current period	—		—	%	—		—	%	—		—	%
Effect of cross-border tax laws	—		—	%	—		—	%	—		—	%
Tax credits
Research and development tax credits	(23)		(4.1)	%	(30)		(5.0)	%	(14)		(2.2)	%
Other credits	(2)		(0.4)	%	(3)		(0.4)	%	(5)		(0.8)	%
Changes in valuation allowances	—		—	%	—		—	%	—		—	%
Nontaxable or nondeductible items
Per diem	10		1.8	%	9		1.5	%	8		1.3	%
Compensation	8		1.4	%	13		2.2	%	6		0.9	%
DOT settlement	(7)		(1.2)	%	(3)		(0.6)	%	22		3.6	%
Other	6		1.1	%	5		0.9	%	2		0.2	%
Changes in unrecognized tax benefits	—		—	%	—		—	%	—		—	%
Other adjustments	(1)		(0.2)	%	(4)		(0.7)	%	(14)		(2.2)	%
Total income tax provision	$	122	21.7	%	$	133	22.2	%	$	168	26.5	%

(1) State taxes in California, New York City, and Hawaii for 2023; California, Texas, and Hawaii for 2024; and Florida, Maryland, California, Colorado, and Arizona for 2025 represented the majority (greater than 50%) of the tax effect within this category.

The total cash paid for income taxes (net of refunds) is composed of the following:


(in millions)	2025		2024		2023
U.S. federal	$	(2)	$	(19)	$	(96)
State*	1		(2)		9
Total cash paid for income taxes (net of refunds)	$	(1)	$	(21)	$	(87)

* Some jurisdictions met the 5% disaggregation threshold; however, the related amounts were immaterial.

The amount of, and changes to, the Company's uncertain tax positions were not material in any of the periods presented. Additionally, the Company does not expect significant changes to the total amount of unrecognized tax benefits within the next 12 months.

The only periods subject to examination for the Company’s federal tax return are tax years 2020, 2024, and 2025. The Company is also subject to various examinations from state and local income tax jurisdictions in the ordinary course of business. These examinations are not expected to have a material effect on the financial results of the Company.

- Definition

The entire disclosure for income tax.

+ References

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