Income Taxes

12 Months Ended

Dec. 31, 2020

INCOME TAXESIncome Tax Provision. We calculate our provision for federal, state and foreign income taxes based on current tax law. The following is a summary of our net provision for income taxes for continuing operations:


Year Ended December 31	2020		2019		2018
Current:
U.S. federal	$	558	$	471	$	587
State	8		36		48
Foreign	132		119		95
Total current	698		626		730
Deferred:
U.S. federal	(130)		49		(37)
State	(2)		1		8
Foreign	5		42		26
Total deferred	(127)		92		(3)
Provision for income taxes, net	$	571	$	718	$	727
Net income tax payments	$	764	$	572	$	532

The reported tax provision differs from the amounts paid because some income and expense items are recognized in different time periods for financial reporting than for income tax purposes. State and local income taxes allocable to U.S. government contracts are included in operating costs and expenses in the Consolidated Statement of Earnings and, therefore, are not included in the provision above.

The reconciliation from the statutory federal income tax rate to our effective income tax rate follows:


Year Ended December 31	2020		2019		2018
Statutory federal income tax rate	21.0	%	21.0	%	21.0	%
Domestic tax credits	(4.6)		(2.0)		(1.1)
Equity-based compensation	(0.2)		(1.1)		(1.1)
Contract close-outs	—		—		(0.5)
Foreign derived intangible income	(2.1)		(1.4)		(1.2)
State tax on commercial operations, net of federal benefits	0.1		0.7		1.1
Global impact of international operations	1.9		0.2		0.6

Other, net	(0.8)		(0.3)		(1.0)
Effective income tax rate	15.3	%	17.1	%	17.8	%

Net Deferred Tax Liability. The tax effects of temporary differences between reported earnings and taxable income consisted of the following:


December 31	2020		2019
Retirement benefits	$	1,042	$	990
Lease liabilities	373		418
Tax loss and credit carryforwards	311		323
Salaries and wages	259		167
Workers’ compensation	167		148
Other	373		367
Deferred assets	2,525		2,413
Valuation allowances	(273)		(291)
Net deferred assets	$	2,252	$	2,122

Intangible assets	$	(1,067)	$	(1,070)
Lease right-of-use assets	(379)		(418)
Contract accounting methods	(311)		(375)
Property, plant and equipment	(270)		(291)
Capital Construction Fund qualified ships	(59)		(164)
Other	(590)		(359)
Deferred liabilities	$	(2,676)	$	(2,677)
Net deferred tax liability	$	(424)	$	(555)

Our deferred tax assets and liabilities are included in other noncurrent assets and liabilities on the Consolidated Balance Sheet. Our net deferred tax liability consisted of the following:


December 31	2020		2019
Deferred tax asset	$	37	$	33
Deferred tax liability	(461)		(588)
Net deferred tax liability	$	(424)	$	(555)

We believe it is more likely than not that we will generate sufficient taxable income in future periods to realize our deferred tax assets, subject to the valuation allowances recognized.

Our deferred tax balance associated with our retirement benefits includes a deferred tax asset of $1.2 billion on December 31, 2020 and $1.1 billion on December 31, 2019, related to the amounts recorded in accumulated other comprehensive loss (AOCL) to recognize the funded status of our retirement plans. See Notes M and R for additional details.

One of our deferred tax liabilities results from our participation in the Capital Construction Fund (CCF), a program established by the U.S. government and administered by the Maritime Administration that supports the acquisition, construction, reconstruction or operation of U.S. flag merchant marine vessels. The program allows us to defer federal and state income taxes on earnings derived from eligible programs as long as the proceeds are deposited in the fund and withdrawals are used for qualified activities. We had U.S. government accounts receivable pledged (and thereby deposited) to the CCF of $295 and $340 on December 31, 2020 and 2019, respectively.

On December 31, 2020, we had net operating loss carryforwards of $1.1 billion, substantially all of which are associated with jurisdictions that have an indefinite carryforward period.

Tax Uncertainties. We participate in the Internal Revenue Service (IRS) Compliance Assurance Process (CAP), a real-time audit of our consolidated federal corporate income tax return. The IRS has examined our consolidated federal income tax returns through 2019.

For all periods open to examination by tax authorities, we periodically assess our liabilities and contingencies based on the latest available information. Where we believe there is more than a 50% chance that our tax position will not be sustained, we record our best estimate of the resulting tax liability, including interest, in the Consolidated Financial Statements. We include any interest or penalties incurred in connection with income taxes as part of income tax expense.

Based on all known facts and circumstances and current tax law, we believe the total amount of any unrecognized tax benefits on December 31, 2020, was not material to our results of operations, financial condition or cash flows. In addition, there are no tax positions for which it is reasonably possible that the unrecognized tax benefits will vary significantly over the next 12 months, producing, individually or in the aggregate, a material effect on our results of operations, financial condition or cash flows.