Income Taxes Level 1 (Notes)

9 Months Ended

Sep. 30, 2022

Income Tax Disclosure [Abstract]

Income Tax Disclosure

Income Taxes

Income tax expense during interim periods is based on our estimated annual effective income tax rate plus any discrete items, which are recorded in the period in which they occur. Discrete items include, among others, events such as changes in estimates due to the finalization of tax returns, tax audit settlements, expiration of statutes of limitation, and increases or decreases in valuation allowances on deferred tax assets. Our effective tax rate was 23.7% and 23.4% for the three months ended September 30, 2022 and 2021, respectively. Our effective tax rate was 25.2% and 23.9% for the nine months ended September 30, 2022 and 2021, respectively. The higher effective tax rate for the three months ended September 30, 2022 was primarily due to fewer excess tax benefits recognized on the settlement of employee share-based awards, which increased tax expense during the quarter. The higher effective tax rate for the nine months ended September 30, 2022 was primarily due to non-deductible losses in the cash surrender value of certain life insurance policies due to negative returns in the financial markets, which increased tax expense during the year. The effective tax rate for the three and nine months ended September 30, 2022 was higher than the federal statutory tax rate of 21% primarily due to state and foreign tax expenses.

On August 16, 2022, the Inflation Reduction Act was enacted into U.S. law. We do not currently expect that the Inflation Reduction Act will have a material impact on our income taxes.

Unrecognized Tax Benefits

As of September 30, 2022, the total amount of our unrecognized tax benefits was $1.3 million and the total amount of our accrued interest was $0.9 million.

The federal statutes of limitation have expired for all tax years prior to 2019, and we are not currently under audit by the IRS. However, pursuant to the 2017 Tax Cuts and Jobs Act, the statute of limitations on the transition tax for the 2017 tax year does not expire until 2024. Various state jurisdictions are auditing years 2013 through 2020. There are currently no federal or provincial audits in Canada; however, years subsequent to 2016 remain open and could be subject to examination. We believe that it is reasonably possible that the recorded amount of gross unrecognized tax benefits may decrease by $1.3 million within the next twelve months as a result of concluding various state tax matters