Income Taxes

12 Months Ended

Dec. 31, 2019

INCOME TAXES

Income Tax Provision

The income tax provision consists of the following:



(In millions)	For the Years Ended December 31,
	2019		2018		2017
Income before provision for income taxes:	$	855.9	$	755.1	$	583.8
Current provision for income taxes:
Federal	94.1		110.9		184.6
State	18.7		19.5		13.5
	112.8		130.4		198.1
Deferred provision for income taxes:
Federal	70.7		35.0		(88.4		)
State	14.8		14.3		2.7
	85.5		49.3		(85.7		)
Interest and penalties expense:
Interest	1.5		1.4		1.2
Penalties	—		—		—
	1.5		1.4		1.2
Provision for income taxes	$	199.8	$	181.1	$	113.6

Deferred Taxes

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities consist of the following:



(In millions)	As of December 31,
	2019		2018
Deferred tax assets:
Allowance for credit losses	$	128.3	$	110.1
Stock-based compensation	15.5		16.5
Deferred state net operating loss	3.6		4.3
Other, net	13.2		7.0
Total deferred tax assets	160.6		137.9
Deferred tax liabilities:
Valuation of Loans receivable	471.3		363.9
Deferred Loan origination costs	1.6		1.5
Other, net	10.2		9.2
Total deferred tax liabilities	483.1		374.6
Net deferred tax liability	$	322.5	$	236.7

The deferred state net operating loss tax asset arising from the operating loss carryforward for state income tax purposes is expected to expire at various times beginning in 2028, if not utilized. During 2018, we wrote off $3.4 million of this deferred tax asset as we determined that we would not be able to utilize a state net operating loss carryforward prior to its expiration. We do not anticipate expiration of the remaining net operating loss carryforwards prior to their utilization.

Effective Income Tax Rate

A reconciliation of the U.S. federal statutory income tax rate to our effective income tax rate is as follows:



	For the Years Ended December 31,
	2019		2018		2017
U.S. federal statutory income tax rate	21.0	%	21.0	%	35.0	%
Effect of the 2017 Tax Act	—	%	-0.7	%	-17.1	%
State income taxes	3.1	%	3.5	%	1.7	%
Excess tax benefits from stock-based compensation plans	-0.9	%	-0.1	%	-0.4	%
Other	0.1	%	0.3	%	0.3	%
Effective income tax rate	23.3	%	24.0	%	19.5	%

U.S. federal statutory income tax rate

The enactment of the 2017 Tax Act in December 2017 lowered our federal statutory income tax rate from 35.0% in 2017 to 21.0% in 2018 and 2019.

Effect of the 2017 Tax Act

While the lower federal statutory income tax rate was not effective until 2018, the 2017 Tax Act resulted in a one-time reversal of $99.8 million of provision for income taxes in 2017 as we were required to revalue deferred taxes and uncertain tax positions at the lower federal statutory income tax rate. In 2018, we reversed a provisional valuation allowance related to stock-based compensation that we had established in 2017 upon enactment of the 2017 Tax Act, which resulted in a $5.5 million reversal of provision for income taxes in 2018.

State income taxes

The decrease in our state income tax rate from 2018 to 2019 was primarily the result of the write-off of a deferred state net operating loss tax asset during 2018. The increase in our state income tax rate from 2017 to 2018 was primarily the result of the write-off of a deferred state net operating loss tax asset during 2018, an increase in the percentage of income reserved for uncertain tax positions and higher effective income tax rates in certain state tax jurisdictions.

Excess tax benefits from stock-based compensation plans

During the first quarter of each year, we receive a tax benefit upon the vesting of restricted stock and the conversion of restricted stock units to common stock based on the fair value of the shares. The amount by which this tax benefit exceeds the grant-date fair value that was recognized as stock-based compensation expense is referred to as an excess tax benefit. Excess tax benefits are recognized in provision for income taxes and reduce our effective income tax rate. The increase in excess tax benefits from 2018 to 2019 was primarily the result of an increase in the number of restricted stock units that were converted to common stock due to the timing of long-term stock award grants.

Unrecognized Tax Benefits

The following table is a summary of changes in gross unrecognized tax benefits:



(In millions)	For the Years Ended December 31,
	2019			2018			2017
Unrecognized tax benefits at January 1,	$	38.7		$	31.9		$	27.7
Additions for tax positions of the current year	10.0			10.2			6.7
Additions for tax positions of prior years	—			—			0.3
Reductions for tax positions of prior years	—			—			(0.4		)
Settlements	(2.3		)	—			—
Reductions as a result of a lapse of the statute of limitations	(4.7		)	(3.4		)	(2.4		)
Unrecognized tax benefits at December 31,	$	41.7		$	38.7		$	31.9

The total amount of gross unrecognized tax benefit that, if recognized, would favorably affect our effective income tax rate in future periods, was $41.7 million as of December 31, 2019. Accrued interest related to uncertain tax positions was $8.9 million and $7.5 million as of December 31, 2019 and 2018, respectively.

We are subject to income tax in federal and state jurisdictions. We are generally no longer subject to tax examinations on federal returns filed for years prior to 2016 and state returns filed for years prior to 2012.