Income Taxes

6 Months Ended

Jun. 30, 2021

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

Our effective tax rate was (10.9) percent for the 2021 second quarter compared to 21.5 percent for the 2020 second quarter, and (16.3) percent for the 2021 first half compared to 27.3 percent for the 2020 first half. The change in our effective tax rates was primarily due to the current year tax benefit from the release of tax reserves due to the favorable resolution of Legacy-Starwood tax audits.

Our unrecognized tax benefits balance decreased by $128 million to $336 million at June 30, 2021 from $464 million at December 31, 2020, primarily due to the release of tax reserves due to the favorable resolution of Legacy-Starwood tax audits.

Our unrecognized tax benefits balance included $286 million at June 30, 2021 and $410 million at December 31, 2020 of tax positions that, if recognized, would impact our effective tax rate. It is reasonably possible that within the next 12 months we will reach resolution of income tax examinations in one or more jurisdictions. The actual amount of any change to our unrecognized tax benefits could vary depending on the timing and nature of the settlement. Therefore, an estimate of the change cannot be provided. We recognize accrued interest and penalties for our unrecognized tax benefits as a component of tax expenses. Related interest (benefit) expense totaled $(36) million in the 2021 first half and $15 million in the 2020 first half. We accrued interest and penalties related to our unrecognized tax benefits of approximately $49 million at June 30, 2021 and $85 million at December 31, 2020.

We file income tax returns, including returns for our subsidiaries, in various jurisdictions around the world. The U.S. Internal Revenue Service (“IRS”) has examined our federal income tax returns, and as of June 30, 2021, we have settled all issues for Marriott for tax years through 2015 and for Starwood through 2016, the year the acquisition was completed. Our Marriott 2016 through 2018 tax year audits are currently ongoing. Various foreign, state, and local income tax returns are also under examination by the applicable taxing authorities.

We paid cash for income taxes, net of refunds, of $220 million in the 2021 first half and $72 million in the 2020 first half.