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Income Taxes
 12 Months Ended
Dec. 31, 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):
202220212020
Amount% of EBTAmount% of EBTAmount% of EBT
Earnings from continuing operations before income taxes (“EBT”)$1,123 $1,335 $339 
Income taxes at statutory rate$236 21 %$280 21 %$71 21 %
Effect of:
Change in valuation allowance(9)(1 %)(4)— %(117)(35 %)
Employee stock ownership plan dividend paid deduction(8)(1 %)(16)(1 %)(2)(1 %)
Tax exempt interest(6)(1 %)(8)(1 %)(10)(3 %)
Stock-based compensation(5)— %(13)(1 %)(4)(1 %)
Adjustment to prior year taxes(3)— %(1)— %1 — %
Dividend received deduction(2)— %(2)— %(2)(1 %)
Tax benefit related to sale of Neon— — %— — %(72)(21 %)
Nondeductible expenses8 1 %8 1 %4 1 %
Foreign operations7 1 %— — %149 44 %
Other7 — %10 — %7 3 %
Provision for income taxes as shown in the statement of earnings$225 20 %$254 19 %$25 7 %

On December 31, 2020, AFG completed the sale of the legal entities that own Neon Underwriting Limited (“Neon”), a United Kingdom-based Lloyd’s insurer (see Note C — “Acquisitions and Sale of Businesses”), which resulted in a taxable loss for U.S. tax purposes. AFG recorded a $72 million tax benefit associated with this loss in 2020. Approximately
$65 million of the $72 million tax benefit reduced current taxes payable while the remaining tax benefit will be received from the carry-back of the tax-basis capital loss to offset capital gains in prior tax years.

Due to uncertainty concerning the realization of the deferred tax benefits associated with losses incurred at Neon (and its predecessor), AFG maintained a full valuation allowance against the deferred tax assets related to the Lloyd’s insurance business. The effect of foreign operations and change in valuation allowance in 2020 in the table above reflect the transfer of the deferred tax assets related to Neon, to the buyer at closing, and the corresponding reduction in the valuation allowance.

Excluding the impact of the $72 million tax benefit on the sale and other impacts of Neon in 2020, AFG’s effective tax rate for the year ended December 31, 2020, was 28%.

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.

Since almost all of AFG’s earnings are taxable based on U.S. tax rates, the Global Intangible Low-taxed Income (“GILTI”) provision is not expected to be material to AFG’s results of operations and will be recorded in the period that any tax arises.

AFG’s 2013 — 2022 tax years remain subject to examination by the IRS.

Total earnings before income taxes include earnings subject to tax in foreign jurisdictions of $64 million in 2022 and $33 million in 2021 and losses subject to tax in foreign jurisdictions of $131 million in 2020. The losses in 2020 are primarily related to Neon.

The total income tax provision of continuing operations consists of (in millions):
202220212020
Current taxes:
Federal$192 $162 $46 
State10 7 4 
Foreign1 1 3 
Deferred taxes:
Federal22 84 (28)
Provision for income taxes$225 $254 $25 
For income tax purposes, AFG and its subsidiaries had the following carryforwards available at December 31, 2022 (in millions):
ExpiringAmount
Operating Loss – U.S.2023 - 2041$12 
Operating Loss – United Kingdomindefinite36 (*)
(*)£30 million
Deferred income tax assets and liabilities reflect temporary differences between the carrying amounts of assets and liabilities recognized for financial reporting purposes and the amounts recognized for tax purposes. The significant components of deferred tax assets and liabilities included in AFG’s Balance Sheet at December 31 were as follows (in millions):
20222021
Deferred tax assets:
Federal net operating loss carryforwards$2 $12 
Foreign underwriting losses10 9 
Insurance claims and reserves255 249 
Employee benefits108 112 
Other, net24 26 
Total deferred tax assets before valuation allowance
399 408 
Valuation allowance against deferred tax assets(16)(25)
Total deferred tax assets383 383 
Deferred tax liabilities:
Investment securities(52)(200)
Deferred policy acquisition costs(66)(61)
Insurance claims and reserves transition liability(12)(17)
Real estate, property and equipment(23)(29)
Total deferred tax liabilities(153)(307)
Net deferred tax asset$230 $76 

AFG’s net deferred tax asset at December 31, 2022 and 2021 is included in other assets in AFG’s Balance Sheet. The increase in AFG’s net deferred tax asset at December 31, 2022 compared to December 31, 2021 reflects net unrealized losses on fixed maturities at December 31, 2022 compared to net unrealized gains at December 31, 2021 and the decrease in fair value of equity securities.

The likelihood of realizing deferred tax assets is reviewed periodically. In assessing the need for a valuation allowance, management considered taxable income in prior carryback years, future taxable income and tax planning strategies that include holding debt securities with unrealized losses until recovery. Such tax planning strategies are viewed by management as prudent and feasible and will be implemented if necessary to realize the deferred tax asset. Any adjustments required to the valuation allowance are made in the period during which developments requiring an adjustment become known.

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

At both December 31, 2022 and December 31, 2021, there are unrecognized tax benefits and related interest and penalties of less than $1 million that, if recognized, would impact the effective tax rate. AFG’s provision for income taxes in both 2022 and 2021 included interest expense of less than $1 million related to unrecognized tax benefits. There is no interest expense related to unrecognized tax benefits included in AFG’s provision for income taxes in 2020. There were liabilities of less than $1 million for interest related to unrecognized tax benefits at both December 31, 2022 and December 31, 2021. There were no penalties related to unrecognized tax benefits included in AFG’s provision for income taxes in 2022, 2021 or 2020. There is no liability for penalties related to unrecognized tax benefits at December 31, 2022 or December 31, 2021.

Cash payments for income taxes, net of refunds, were $242 million, $212 million and $179 million for 2022, 2021 and 2020, respectively.