Income Taxes

9 Months Ended

Sep. 30, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The following is a reconciliation of income taxes on continuing operations at the statutory rate of 21% to the provision for income taxes as shown in AFG’s Statement of Earnings (dollars in millions):

	Three months ended September 30,								Nine months ended September 30,
	2022				2021				2022				2021
	Amount		% of EBT		Amount		% of EBT		Amount		% of EBT		Amount		% of EBT
Earnings from continuing operations before income taxes (“EBT”)	$	210			$	267			$	777			$	890
Income taxes at statutory rate	$	44	21	%	$	56	21	%	$	163	21	%	$	187	21	%
Effect of:
Employee stock ownership plan dividend paid deduction	(1)		—	%	(2)		(1	%)	(7)		(1	%)	(10)		(1	%)
Stock-based compensation	—		—	%	(2)		(1	%)	(4)		(1	%)	(12)		(1	%)
Tax exempt interest	(1)		—	%	(2)		(1	%)	(5)		(1	%)	(6)		(1	%)
Adjustment to prior year taxes	(3)		(2	%)	(1)		—	%	(3)		—	%	(1)		—	%
Dividends received deduction	—		—	%	—		—	%	(1)		—	%	(1)		—	%
Foreign operations	1		—	%	2		1	%	6		1	%	—		—	%
Nondeductible expenses	2		1	%	2		1	%	5		1	%	6		1	%
Change in valuation allowance	2		1	%	(2)		(1	%)	1		—	%	1		—	%
Other	1		—	%	(3)		(1	%)	—		—	%	—		(1	%)
Provision for income taxes as shown in the statement of earnings	$	45	21	%	$	48	18	%	$	155	20	%	$	164	18	%

AFG’s net operating loss carryforwards (“NOL”) subject to separate return limitation year (“SRLY”) tax rules of $43 million will expire unutilized at December 31, 2022. Since AFG maintains a full valuation allowance against its SRLY NOLs, the expiration of these loss carryforwards will be offset by a corresponding reduction in the valuation allowance and will have no overall impact on AFG’s income tax expense or results of operations.

In August 2022, the United States federal government enacted the Inflation Reduction Act (“IRA”) which, among other things, created a new corporate alternative minimum tax (“AMT”) based on the earnings that a company reports in its financial statements and imposes a 1% excise tax on corporate stock repurchases. The effective date of the IRA is January 1, 2023, and the August 2022 enactment did not have an immediate impact on AFG’s financial statements. Due to the lack of specific guidance at this time, AFG cannot determine whether it will be subject to the new AMT. Any AMT incurred would be available to offset AFG’s taxes payable under the standard calculation in future periods. Accordingly, the AMT is a timing difference and would result in the recording of an offsetting deferred tax asset with no impact on overall income tax expense. The excise tax on stock repurchases would be recorded as part of the cost of the repurchases directly in shareholders’ equity.