Income Taxes

9 Months Ended

Sep. 30, 2021

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

Our effective tax rate was 21.1 percent for the 2021 third quarter compared to 21.6 percent for the 2020 third quarter, and 0.2 percent for the 2021 first three quarters compared to 32.0 percent for the 2020 first three quarters. The decrease in our effective tax rate for the first three quarters 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 $131 million to $333 million at September 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 $283 million at September 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 $(33) million in the 2021 first three quarters and $21 million in the 2020 first three quarters. We accrued interest and penalties related to our unrecognized tax benefits of approximately $52 million at September 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 September 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 2020 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 $293 million in the 2021 first three quarters and $240 million in the 2020 first three quarters.