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Income Taxes
12 Months Ended
Dec. 31, 2023
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 98: INCOME TAXES
FOR THE YEAR ENDED DECEMBER 31,
202320222021
Statutory Federal Tax Rate21.0 %21.0 %21.0 %
State Taxes, net3.4 3.3 3.4 
Foreign Tax Rate Differential0.6 0.1 0.1 
Excess Tax Benefit Related to Share-Based Compensation(0.1)(0.2)(0.4)
Tax Credits(2.7)(2.0)(1.6)
Tax Exempt Income(1.4)(0.9)(0.6)
Valuation Allowance1.8 1.5 0.6 
Other, net1.8 1.6 0.6 
Effective Tax Rate24.4 %24.4 %23.1 %

Income tax expense for the year ended December 31, 2023, 2022, and 2021 was $357.5 million, $430.3 million, and $464.8 million, representing an effective tax rate of 24.4%, 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.
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 2015, U.S. state or local tax authorities for years before 2011, or non-U.S. tax authorities for years before 2014.
Included in Other Liabilities on the consolidated balance sheets at December 31, 2023 and 2022 were $60.7 million and $40.7 million of unrecognized tax benefits, respectively. If recognized, the amounts would reduce 2023 and 2022 income tax expense by $54.4 million and $37.4 million, respectively. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows.

TABLE 99: UNRECOGNIZED TAX BENEFITS
(In Millions)202320222021
Balance at January 1$40.7 $25.3 $22.4 
Additions for Tax Positions Taken in the Current Year2.1 1.7 1.2 
Additions for Tax Positions Taken in Prior Years24.0 13.7 4.2 
Reductions for Tax Positions Taken in Prior Years(5.1)— (2.5)
Reductions Resulting from Expiration of Statutes(1.0)— — 
Balance at December 31$60.7 $40.7 $25.3 

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 $0.2 million, net of tax, was included in the Provision for Income Taxes for the year ended December 31, 2023. This compares to a provision for interest and penalties of $11.1 million, net of tax, and a benefit of $0.4 million, net of tax, for the year ended December 31, 2022 and 2021, respectively. As of December 31, 2023 and 2022, the liability for the potential payment of interest and penalties totaled $22.7 million and $22.2 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 100: PROVISION FOR INCOME TAXES
FOR THE YEAR ENDED DECEMBER 31,
(In Millions)202320222021
Current Tax Provision:
Federal$250.5 $357.7 $241.5 
State63.2 84.7 74.0 
Non-U.S.92.0 130.6 147.3 
Total$405.7 $573.0 $462.8 
Deferred Tax Provision:
Federal$(54.0)$(126.0)$(11.7)
State(1.4)(10.7)12.0 
Non-U.S.7.2 (6.0)1.7 
Total$(48.2)$(142.7)$2.0 
Provision for Income Taxes$357.5 $430.3 $464.8 

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 14, “Accumulated Other Comprehensive Income (Loss).”

TABLE 101: TAX CHARGES (BENEFITS) RECORDED DIRECTLY TO STOCKHOLDERS’ EQUITY
FOR THE YEAR ENDED DECEMBER 31,
(In Millions)202320222021
Tax Effect of Other Comprehensive Income$120.2 $(471.3)$(126.6)
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 102: DEFERRED TAX ASSETS AND LIABILITIES
DECEMBER 31,
(In Millions)20232022
Deferred Tax Liabilities:
Software Development394.9 354.7 
Depreciation and Amortization23.9 122.6 
Compensation and Benefits 5.2 
State Taxes, net46.8 58.3 
Other Liabilities53.4 42.1 
Gross Deferred Tax Liabilities519.0 582.9 
Deferred Tax Assets:
Allowance for Credit Losses46.2 41.8 
Unrealized Losses on Securities, net244.6 427.3 
Compensation and Benefits70.2 — 
Tax Credit and Loss Carryforwards121.2 95.3 
Other Assets116.0 143.7 
Gross Deferred Tax Assets598.2 708.1 
Valuation Reserve(121.2)(95.3)
Deferred Tax Assets, net of Valuation Reserve477.0 612.8 
Net Deferred Tax Assets (Liabilities)$(42.0)$29.9 

The Corporation generated a foreign tax credit carryforward during the years ended December 31, 2023 and 2022, expiring in 2033 and 2032, respectively. A cumulative valuation allowance related to the credit carryforward of $120.7 million and $94.9 million was recorded at December 31, 2023 and 2022, 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, 2023 and 2022. The income tax benefits associated with these loss carryforwards were approximately $0.4 million and $0.4 million as of December 31, 2023 and 2022, respectively. A valuation allowance related to the loss carryforwards of $0.4 million and $0.4 million was recorded at December 31, 2023 and 2022, respectively, as management believes the net operating losses will not be fully realized.