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Income Taxes
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The following table reconciles the statutory federal tax rate with the effective tax rate for the periods presented below.

TABLE 100: INCOME TAXES
FOR THE YEAR ENDED DECEMBER 31,
202220212020
Statutory Federal Tax Rate21.0 %21.0 %21.0 %
Tax Exempt Income(0.9)(0.6)(0.9)
Foreign Tax Rate Differential0.1 0.1 0.7 
Excess Tax Benefit Related to Share-Based Compensation(0.2)(0.4)(0.6)
Tax Credits(2.0)(1.6)(1.7)
Reversal of Tax Benefits Previously Recognized through Earnings— — 1.6 
State Taxes, net3.3 3.4 3.2 
Valuation Allowance1.5 0.6 1.6 
Other1.6 0.6 0.8 
Effective Tax Rate24.4 %23.1 %25.7 %

Income tax expense for the year ended December 31, 2022 and 2021 was $430.3 million and $464.8 million, representing an effective tax rate of 24.4% and 23.1%, respectively. For the year ended December 31, 2022, the increase in the effective tax rate was primarily driven by a higher net impact from international operations, including limitations on the U.S. foreign tax credit and reserves for uncertain tax positions, partially offset by increased tax benefits from tax-credit investments and tax-exempt income.
For the year ended December 31, 2021, the decrease in the effective tax rate was primarily driven by the lower net tax impact from international operations and $26.8 million of prior-year tax expense related to the reversal of tax benefits previously recognized through earnings.
For the year ended December 31, 2020, the increase in the effective tax rate was primarily driven by $26.8 million of tax expense related to the reversal of tax benefits previously recognized through earnings and higher taxes payable on the income of the Corporation’s non-U.S. branches.
The Corporation files income tax returns in the U.S. federal, various state, and foreign jurisdictions. The Corporation is no longer subject to income tax examinations by U.S. federal authorities before 2013, U.S. state or local tax authorities for years before 2011, or non-U.S. tax authorities for years before 2013.
Included in Other Liabilities on the consolidated balance sheets at December 31, 2022 and 2021 were $40.7 million and $25.3 million of unrecognized tax benefits, respectively. If recognized, the amounts would reduce 2022 and 2021 income tax expense by $37.4 million and $23.9 million, respectively. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows.

TABLE 101: UNRECOGNIZED TAX BENEFITS
(In Millions)202220212020
Balance at January 1$25.3 $22.4 $25.3 
Additions for Tax Positions Taken in the Current Year1.7 1.2 0.9 
Additions for Tax Positions Taken in Prior Years13.7 4.2 0.4 
Reductions for Tax Positions Taken in Prior Years— (2.5)(4.2)
Reductions Resulting from Expiration of Statutes— — — 
Balance at December 31$40.7 $25.3 $22.4 

It is possible that changes in the amount of unrecognized tax benefits could occur in the next 12 months due to changes in judgment related to recognition or measurement, settlements with taxing authorities, or expiration of statute of limitations. Management does not believe that future changes, if any, would have a material effect on the consolidated financial position or liquidity of Northern Trust, although they could have a material effect on operating results for a particular period.
A provision for interest and penalties of $11.1 million, net of tax, was included in the Provision for Income Taxes for the year ended December 31, 2022. This compares to a benefit for interest and penalties of $0.4 million, net of tax, and a provision of $1.2 million, net of tax, for the year ended December 31, 2021 and 2020, respectively. As of December 31, 2022 and 2021, the liability for the potential payment of interest and penalties totaled $22.2 million and $9.2 million, net of tax, respectively.
The components of the consolidated Provision for Income Taxes for each of the three years ended December 31 are as follows.

TABLE 102: PROVISION FOR INCOME TAXES
FOR THE YEAR ENDED DECEMBER 31,
(In Millions)202220212020
Current Tax Provision:
Federal$357.7 $241.5 $203.0 
State84.7 74.0 57.2 
Non-U.S.130.6 147.3 141.7 
Total$573.0 $462.8 $401.9 
Deferred Tax Provision:
Federal$(126.0)$(11.7)$8.8 
State(10.7)12.0 5.4 
Non-U.S.(6.0)1.7 2.2 
Total$(142.7)$2.0 $16.4 
Provision for Income Taxes$430.3 $464.8 $418.3 

In addition to the amounts shown above, tax charges (benefits) have been recorded directly to Stockholders’ Equity for the following. For further detail, refer to Note 15, “Accumulated Other Comprehensive Income (Loss).”

TABLE 103: TAX CHARGES (BENEFITS) RECORDED DIRECTLY TO STOCKHOLDERS’ EQUITY
FOR THE YEAR ENDED DECEMBER 31,
(In Millions)202220212020
Tax Effect of Other Comprehensive Income$(471.3)$(126.6)$168.1 

Deferred taxes result from temporary differences between the amounts reported on the consolidated financial statements and the tax bases of assets and liabilities. Deferred tax assets and liabilities have been computed as follows.

TABLE 104: DEFERRED TAX ASSETS AND LIABILITIES
DECEMBER 31,
(In Millions)20222021
Deferred Tax Liabilities:
Lease Financing$— $7.0 
Software Development354.7 271.8 
Depreciation and Amortization122.6 181.3 
Unrealized Gains on Securities, net— 82.8 
Compensation and Benefits5.2 65.6 
State Taxes, net58.3 76.3 
Other Liabilities42.1 23.3 
Gross Deferred Tax Liabilities582.9 708.1 
Deferred Tax Assets:
Allowance for Credit Losses41.8 38.6 
Unrealized Losses on Securities, net427.3 — 
Tax Credit and Loss Carryforwards95.3 68.2 
Other Assets143.7 85.4 
Gross Deferred Tax Assets708.1 192.2 
Valuation Reserve(95.3)(68.2)
Deferred Tax Assets, net of Valuation Reserve612.8 124.0 
Net Deferred Tax Assets (Liabilities)$29.9 $(584.1)

The Corporation generated a foreign tax credit carryforward during the years ended December 31, 2022 and 2021, expiring in 2032 and 2031, respectively. A cumulative valuation allowance related to the credit carryforward of $94.9
million and $67.8 million was recorded at December 31, 2022 and 2021, respectively, as management believes the foreign tax credit carryforwards will not be fully realized.Northern Trust had various state net operating loss carryforwards as of December 31, 2022 and 2021. The income tax benefits associated with these loss carryforwards were approximately $0.4 million as of both December 31, 2022 and 2021. A valuation allowance related to the loss carryforwards of $0.4 million was recorded at both December 31, 2022 and 2021, as management believes the net operating losses will not be fully realized.