Taxes on Income (Tables)

12 Months Ended

Dec. 31, 2012

The components of income tax expense are as follows:



Year Ended December 31,	2012		2011		2010


Current:
Federal	$	489	$	424	$	326
State		28		52		50

Total current		517		476		376


Deferred:
Federal		5		44		(43)
State		-		8		(8)

Total deferred		5		52		(51)

Taxes on income	$	522	$	528	$	325

Temporary Differences That Created Deferred Tax Assets and Liabilities

The temporary differences that created deferred tax assets and liabilities are detailed below:



December 31,	2012		2011


Deferred tax assets:
Employee compensation, severance, and benefits	$	189	$	173
Reserves and allowances		37		40
Facilities lease commitments		35		37
Net operating loss carryforwards		6		5
State and local taxes		-		8
Other		-		5

Total deferred tax assets		267		268
Valuation allowance		(3)		(1)

Deferred tax assets – net of valuation allowance		264		267


Deferred tax liabilities:
Net unrealized gain on securities available for sale		(179)		(5)
Depreciation and amortization		(166)		(162)
Capitalized internal-use software development costs		(50)		(42)
Deferred loan costs		(15)		(20)
Deferred cancellation of debt income		(11)		(11)
Deferred Senior Note exchange		(6)		-
Other		(7)		-

Total deferred tax liabilities		(434)		(240)

Deferred tax (liability) asset – net ⁽¹⁾	$	(170)	$	27

⁽¹⁾	Amounts are included in accrued expenses and other liabilities and other assets at December 31, 2012 and 2011, respectively.

Reconciliation of Federal Statutory Income Tax Rate to Effective Income Tax Rate

A reconciliation of the federal statutory income tax rate to the effective income tax rate is as follows:



Year Ended December 31,	2012		2011		2010


Federal statutory income tax rate		35.0%		35.0%		35.0%
State income taxes, net of federal tax benefit ⁽¹⁾		1.2		2.5		3.3
Non-deductible penalties ⁽²⁾		-		-		2.7
Other		(0.2)		0.4		0.7

Effective income tax rate		36.0%		37.9%		41.7%

⁽¹⁾	Includes the impact of a non-recurring state tax benefit of $20 million recorded in the third quarter of 2012.

⁽²⁾	Includes the impact of regulatory settlements relating to the Schwab YieldPlus Fund in 2010.

Reconciliation of Beginning and Ending Amount of Unrecognized Tax Benefits

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:




December 31,	2012		2011


Balance at beginning of year	$	13	$	11
Additions for tax positions related to the current year		1		1
Additions for tax positions related to prior years		1		2
Reductions due to lapse of statute of limitations		(2)		(1)
Reductions for settlements with tax authorities		(1)		-

Balance at end of year	$	12	$	13

- Definition

Tabular disclosure of tax positions taken in the tax returns filed or to be filed for which it is more likely than not that the tax position will not be sustained upon examination by taxing authorities (i.e., uncertain tax positions) and other types of income tax contingencies, including: (1) the policy on classification of interest and penalties; (2) a tabular reconciliation of the total amounts of unrecognized tax benefits at the beginning and end of the period; the total amount(s) of: (3) unrecognized tax benefits that, if recognized, would affect the effective tax rate, and (4) interest and penalties recognized in each of the income statement and balance sheet; (5) for positions for which it is reasonably possible that the total amounts unrecognized will significantly change within 12 months of the reporting date the: (i) nature of the uncertainty, (ii) nature of the event that could occur that would cause the change, and (iii) an estimate of the range of the reasonably possible change or a statement that an estimate of the range cannot be made; and (6) a description of tax years that remain subject to examination by major tax jurisdictions.

+ References+ Details