Microsoft’s latest annual financial report shows the company achieved record profitability while it avoided federal income tax on almost all of its U.S. income for fiscal year 2026. The company’s 2.44 percent federal tax rate on over $100 billion of U.S. income is largely attributable to tax breaks that were either created or expanded by Republican tax cuts enacted at the behest of President Donald Trump in 2017 and 2025.
Microsoft’s $101 billion of pretax U.S. income dwarfs its previous all-time high of $65 billion, recorded the previous year. And instead of paying $21 billion of current federal income tax, as the 21 percent statutory federal income tax rate should require, Microsoft reports just $2.46 billion of current federal tax. That’s an effective federal income tax rate of 2.44 percent. This means the company reduced its federal income taxes by $18.7 billion last year.
Fully two-thirds of the company’s tax breaks last year are due to one provision, accelerated depreciation. This tax break was turbocharged by the “bonus depreciation” measure passed initially by Congressional Republicans and President Trump in 2017 and made permanent by Republicans as part of Trump’s 2025 corporate tax cuts.
While Microsoft does not disclose how much of these depreciation tax breaks are tied to its AI investments, there is no doubt that many are tied to new data centers, chips, servers, and other such property. This all comes at a time when many workers are being displaced due to advancing AI capabilities, and when Microsoft itself is laying off thousands of workers.
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https://itep.org/microsoft-earnings-record-profit-tax-avoidance-2026/