
	2020		2019		2018
Federal income tax expense (benefit):
Current
Operations	$	1,292	$	698	$	975
One-time charge due to tax legislation	—		—		(6)
Deferred
Operations	21		235		(194)
One-time charge due to tax legislation	—		—		(37)
Total federal income tax expense	1,313		933		738
Foreign income tax expense (benefit):
Current	50		91		67
Deferred	(16)		(13)		(13)
Total foreign income tax expense	34		78		54
Total income tax expense	$	1,347	$	1,011	$	792

State income taxes are included in our operations as general and administrative costs and, under U.S. Government regulations, are allowable costs in establishing prices for the products and services we sell to the U.S. Government. Therefore, a substantial portion of state income taxes is included in our net sales and cost of sales. As a result, the impact of certain transactions on our operating profit and of other matters presented in these consolidated financial statements is disclosed net of state income taxes. Our total net state income tax expense was $197 million for 2020, $96 million for 2019, and $83 million for 2018.

Our reconciliation of the U.S. federal statutory income tax rate of 21.0% to actual income tax expense for continuing operations is as follows (dollars in millions):


	2020				2019				2018
	Amount		Rate		Amount		Rate		Amount		Rate
Income tax expense at the U.S. federal statutory tax rate	$	1,729	21.0	%	$	1,521	21.0	%	$	1,226	21.0	%
Foreign derived intangible income deduction	(170)		(2.1)		(122)		(1.7)		(61)		(1.0)
Research and development tax credit	(97)		(1.2)		(148)		(2.0)		(138)		(2.4)
Tax deductible dividends	(64)		(0.8)		(62)		(0.9)		(59)		(1.0)
Excess tax benefits for share-based payment awards	(52)		(0.6)		(63)		(0.9)		(55)		(0.9)
Tax accounting method change (a)	—		—		(15)		(0.2)		(61)		(1.0)
Deferred tax write-down and transition tax (b)	—		—		—		—		(43)		(0.7)
Other, net (c)	1		0.1		(100)		(1.3)		(17)		(0.4)
Income tax expense	$	1,347	16.4	%	$	1,011	14.0	%	$	792	13.6	%

(a)Recognized tax benefit of $15 million and $61 million in 2019 and 2018, from our change in a tax accounting method related to restoration of tax basis.

(b)Includes a deferred tax re-measurement and transition tax true-up in 2018 primarily due to the re-measurement of certain net deferred tax assets using the lower U.S. corporate income tax rate and a deemed repatriation tax.

(c)Includes additional $21 million deduction for foreign derived intangible income related to 2019 recognized in 2020. Includes additional $98 million deduction for foreign derived intangible income related to 2018 recognized in 2019 reflecting proposed tax regulations released on March 4, 2019.

We recognized a tax benefit of $191 million in 2020 and $220 million in 2019 from the deduction for foreign derived intangible income enacted by the Tax Cuts and Jobs Act of 2017 (the “Tax Act”). The rate for 2020 benefited from $21 million additional tax deductions for the prior year. The rate for 2019 benefited from $98 million additional tax deductions for 2018, primarily due to proposed tax regulations released on March 4, 2019.

We receive a tax deduction for dividends paid on shares of our common stock held by certain of our defined contribution plans with an employee stock ownership plan feature. The amount of the tax deduction has increased as we increased our dividend over the last three years, partially offset by a decline in the number of shares in these plans.

We participate in the IRS Compliance Assurance Process program. Examinations of the years 2019 and 2020 remain under IRS review. We are also subject to taxation in various states and foreign jurisdictions including Australia, Canada, India, Italy, Japan, Poland, and the United Kingdom. We are under, or may be subject to, audit or examination and additional assessments by the relevant authorities.

The primary components of our federal and foreign deferred income tax assets and liabilities at December 31 were as follows (in millions):


	2020		2019
Deferred tax assets related to:
Accrued compensation and benefits	$	926	$	659
Pensions	2,994		3,057
Contract accounting methods	392		349
Foreign company operating losses and credits	51		49
Other (a)	509		416
Valuation allowance (b)	(13)		(28)
Deferred tax assets, net	4,859		4,502
Deferred tax liabilities related to:
Goodwill and purchased intangibles	363		330
Property, plant and equipment	481		340
Exchanged debt securities and other (a)	547		525
Deferred tax liabilities	1,391		1,195
Net deferred tax assets	$	3,468	$	3,307

(b)A valuation allowance was provided against certain foreign company deferred tax assets arising from carryforwards of unused tax benefits.

We and our subsidiaries file federal income tax returns in the U.S. and income tax returns in various foreign jurisdictions. With few exceptions, the statute of limitations for these jurisdictions is no longer open for audit or examination for the years before 2015, other than with respect to refunds.