Income Taxes

12 Months Ended

Dec. 31, 2020

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

Income Tax Provision

Our income tax provision consisted of the following:

Components of income tax benefit (provision)
	Year Ended December 31,
(in millions)	2020		2019		2018
Current tax benefit (provision):
Federal	$	94	$	94	$	187
State and local	3		(39)		(26)
International	(5)		(13)		(13)
Deferred tax benefit (provision):
Federal	2,766		(1,343)		(1,226)
State and local	344		(130)		(138)
Income tax benefit (provision)	$	3,202	$	(1,431)	$	(1,216)

The following table presents the principal reasons for the difference between the effective tax rate and the U.S. federal statutory income tax rate:

Reconciliation of statutory federal income tax rate to the effective income tax rate
	Year Ended December 31,
	2020		2019		2018
U.S. federal statutory income tax rate	21.0	%	21.0	%	21.0	%
State taxes, net of federal benefit	1.9		2.3		2.5
Valuation allowance	(2.6)		0.7		—
Other	0.2		(0.9)		0.1
Effective income tax rate	20.5	%	23.1	%	23.6	%

Deferred Taxes

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting and income tax purposes. The following table shows significant components of our deferred tax assets and liabilities:

Significant components of deferred income tax assets and liabilities
	December 31,
(in millions)	2020		2019
Deferred tax assets:
Net operating loss carryforwards	$	1,495	$	560
Capital loss carryforward	483		—
Pension, postretirement and other benefits	2,956		2,241
Deferred revenue	1,797		1,667
Lease liabilities	2,185		1,510
Other	611		380
Valuation allowance	(460)		(58)
Total deferred tax assets	$	9,067	$	6,300
Deferred tax liabilities:
Depreciation	$	4,507	$	5,190
Operating lease assets	1,324		1,298
Intangible assets	1,076		1,049
Other	172		99
Total deferred tax liabilities	$	7,079	$	7,636
Net deferred tax assets (liabilities)(1)	$	1,988	$	(1,336)

(1)At December 31, 2020, the net deferred tax assets of $2.0 billion are recorded in deferred income taxes, net within noncurrent assets. At December 31, 2019, the net deferred tax liabilities of $1.3 billion included $120 million of net state deferred tax assets, which are recorded in deferred income taxes, net within noncurrent assets, and $1.5 billion of net federal deferred tax liabilities, which are recorded in deferred income taxes, net within noncurrent liabilities.

As of December 31, 2020, we had $5.7 billion of federal pre-tax net operating loss carryforwards, which will not begin to expire until 2027.

Valuation Allowance

We periodically assess whether it is more likely than not that we will generate sufficient taxable income to realize our deferred income tax assets. We establish valuation allowances if it is not likely we will realize our deferred income tax assets. In making this determination, we consider available positive and negative evidence and make certain assumptions. We consider, among other things, projected future taxable income, scheduled reversals of deferred tax liabilities, the overall business environment, our historical financial results and tax planning strategies.

At December 31, 2020 our net deferred tax asset balance was $2.0 billion, including a $460 million valuation allowance primarily related to capital loss carryforwards and state net operating losses. Although we are in a three year cumulative loss position as of December 31, 2020, we have a recent history of significant earnings prior to the onset of the COVID-19 pandemic. We expect to return to profitability as the effects of the pandemic subside and to generate sufficient taxable income to utilize our federal net operating loss carryforwards before any expire. Our federal net operating loss carryforwards generated before 2018 do not begin to expire until 2027. Under current tax law, federal net operating losses generated in 2020 do not expire. Therefore, we have not recorded a valuation allowance on our deferred tax assets other than the capital loss carryforwards and state net operating losses that have short expiration periods.

Income Tax Allocation

We consider all income sources, including other comprehensive income, in determining the amount of tax benefit allocated to continuing operations ("Income Tax Allocation"). The 2017 tax reform reduced the statutory tax rate in the U.S. from 35% to 21%. GAAP requires that the tax expense related to tax law changes be recognized in current earnings, even when a portion of the related deferred tax asset originated through amounts recognized in AOCI. As a result, approximately $750 million of income tax expense remains in AOCI, primarily related to pension obligations, and will not be recognized in net income until the pension obligations are fully extinguished.

Other

The amount of, and changes to, our uncertain tax positions were not material in any of the years presented. We are currently under audit by the IRS for the 2020 and 2019 tax years.