Income Taxes

9 Months Ended

Sep. 30, 2023

Income Tax Disclosure [Abstract]

Income Taxes

O. Income Taxes – Alcoa Corporation’s estimated annualized effective tax rate (AETR) for 2023 as of September 30, 2023 differs from the U.S. federal statutory rate of 21% primarily due to losses in certain jurisdictions with full valuation allowances resulting in no tax benefit in addition to foreign jurisdictions with higher statutory tax rates, partially offset by the reversal of a valuation allowance recorded against the deferred tax assets of the Company's subsidiaries in Iceland.

	Nine months ended September 30,
	2023				2022
(Loss) income before income taxes	$	(507	)		$	942
Estimated annualized effective tax rate		(18.9	)	%		54.0		%
Income tax expense	$	96			$	509
Favorable tax impact related to losses in jurisdictions with no tax benefit		—				(27	)
Discrete tax (benefit) expense		(57	)			2
Provision for income taxes	$	39			$	484

The Company’s subsidiaries in Iceland had a full valuation allowance recorded against deferred tax assets, which was established in 2015 and 2017, as the Company believed it was more likely than not that these tax benefits would not be realized. During 2023, after considering all positive and negative evidence, including the expectation that the jurisdiction will remain in a three-year cumulative income position, the Company determined that it is more likely than not that the net deferred tax assets will be realized. Based on this conclusion, the Company reversed the valuation allowance totaling $58 during the third quarter of 2023, generating a non-cash benefit from income taxes.

As of September 30, 2023, management’s position continues to be it is more likely than not that the deferred tax assets of AWAB will be realized. A valuation allowance has not been recorded against the deferred tax assets. However, if future losses are incurred by AWAB, it is reasonably possible that a valuation allowance could be established as a result of negative evidence to support the realization of such assets. AWAB’s net deferred tax assets were $132 at September 30, 2023. The majority of AWAB’s net deferred tax assets relate to prior net operating losses; the loss carryforwards are not subject to an expiration period.

On August 16, 2022, the U.S. enacted the Inflation Reduction Act of 2022 (IRA), which includes a 15% minimum tax on book income of certain large corporations, a 1% excise tax on net stock repurchases after December 31, 2022, and several tax incentives to promote clean energy. As a result of the provisions of the IRA, we will incur an excise tax of 1% for certain common stock repurchases made subsequent to December 31, 2022, which will be reflected in the cost of purchasing the underlying shares. The minimum corporate tax will not have an impact on the Company for 2023.

The IRA contains a number of tax credits and other incentives for investments in renewable energy production, carbon capture, and other climate-related actions, as well as the production of critical minerals. These provisions may result in an incremental benefit to the Company. However, given the complexity and uncertainty around the applicability of the incentives to our specific facts and circumstances, we continue to analyze the IRA provisions and seek clarity from relevant government entities to identify and quantify potential opportunities and applicable benefits included in the legislation. At this time the applicability of those provisions to the Company’s specific facts and circumstances are uncertain, and an estimate of those benefits has not been recorded.