INCOME TAXES

12 Months Ended

Dec. 31, 2020

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The components of deferred tax assets and liabilities at December 31, 2020 and 2019, are as follows:

(in millions)	2020			2019
DEFERRED TAX LIABILITIES:
Accelerated depreciation	$	2,939		$	3,096
Prepaid insurance	190			12
Operating lease right-of-use assets	423			293
Other	67			81
Total deferred tax liabilities	3,619			3,482
DEFERRED TAX ASSETS:
Accrued employee benefits	491			346
Rapid rewards loyalty liability	632			305
Operating lease liabilities	443			308
Residual travel funds	117			—
Construction obligation	72			38
Net operating losses and tax credits	60		(a)	8
Other	170			113
Total deferred tax assets	1,985			1,118
Net deferred tax liability	$	1,634		$	2,364

(a) At December 31, 2020, the Company had approximately $852 million of state net operating loss carryforwards to reduce future state taxable income. These state net operating loss carryforwards will expire in years 2025 - 2040 if unused.

The Company's income tax benefit recorded was 27.8 percent for 2020, which is higher than its tax rate of 22.2 percent for 2019. The higher effective tax rate in 2020 reflects the benefit of carrying back 2020 net losses to claim tax refunds against previous cash taxes paid relating to tax years 2015 through 2019, some of which were at higher rates than the current year. The provision (benefit) for income taxes is composed of the following:

(in millions)	2020		2019		2018
CURRENT:
Federal (a)	$	(273)	$	610	$	338
State	(5)		102		60
Change in federal statutory rate (b)	(188)		—		—
Total current	(466)		712		398
DEFERRED:
Federal (a)	(589)		(18)		299
State	(76)		(6)		2
State net operating losses	(51)		—		—
Change in federal statutory tax rate (c)	—		(31)		—
Total deferred	(716)		(55)		301
	$	(1,182)	$	657	$	699

(a) The CARES Act allows entities to carry back 2020 losses to prior periods of up to five years, and claim refunds of federal taxes paid, and the Company expects to receive a significant cash tax refund once it completes all the necessary requirements to make the appropriate filings with the IRS.

(b) The benefit is representative of the excess refund generated as the result of carrying the 2020 losses back to a period when the federal statutory tax rate was 35 percent as opposed to the current tax rate of 21 percent.

(c) The Tax Cuts and Jobs Act was enacted in December 2017, which reduced the U.S. federal corporate tax rate from the previous rate of 35 percent to 21 percent.

The effective tax rate on Income (loss) before income taxes differed from the federal income tax statutory rate for the following reasons:

(in millions)	2020			2019			2018
Tax at statutory U.S. tax rates	$	(894)		$	621		$	664
State income taxes, net of federal benefit	(115)			76			49
Change in federal statutory tax rate	(188)		(a)	(31)		(b)	—
Other, net	15			(9)			(14)
Total income tax provision (benefit)	$	(1,182)		$	657		$	699

(a) The benefit is representative of the excess refund generated as the result of carrying the 2020 losses back to a period when the federal statutory tax rate was 35 percent as opposed to the current tax rate of 21 percent.

(b) The Tax Cuts and Jobs Act was enacted in December 2017, which reduced the U.S. federal corporate tax rate from the previous rate of 35 percent to 21 percent.

The only periods subject to examination for the Company’s federal tax return are the 2019 and 2020 tax years. The Company is also subject to various examinations from state and local income tax jurisdictions in the ordinary course of business. These examinations are not expected to have a material effect on the financial results of the Company.