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Income Taxes
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The income tax provision from continuing operations consisted of the following amounts:
 Year Ended December 31,
(In millions, except effective income tax rate)202120202019
Current   
State$48 $22 $2 
Foreign3 4 4 
Total — current51 26 6 
Deferred   
U.S. Federal569 168 (3,000)
State36 60 (340)
Foreign16 (3)— 
Total — deferred621 225 (3,340)
Total income tax expense/(benefit)$672 $251 $(3,334)
Effective income tax rate23.5 %33.0 %(424.2)%
During the year ended December 31, 2019, NRG released the majority of its valuation allowance against its U.S. federal and state deferred tax assets, resulting in a non-cash benefit to income tax expense of approximately $3.5 billion. In making the determination to release the majority of the valuation allowance as of December 31, 2019, the Company evaluated a number of factors, including its recent history of pre-tax earnings, utilization of $593 million of NOLs in 2019, as well as its forecasted future pre-tax earnings. Based on this evaluation, the Company determined that the majority of its future tax benefits are more-likely-than-not to be realized. Given the Company’s current level of pre-tax earnings and forecasted future pre-tax earnings, the Company expects to generate income before taxes in the U.S. in future periods at a level that would fully utilize its U.S. federal NOL carryforwards and the majority of its state NOL carryforwards prior to their expiration.
On March 27, 2020, the Senate passed the CARES Act to provide emergency relief related to the COVID-19 pandemic. The CARES Act contains federal income tax provisions which, among other things: (i) increases the amount of interest expense that businesses are allowed to deduct by increasing the adjusted taxable income limitation from 30% to 50% for tax years that begin in 2019 and 2020; (ii) permits businesses to carry back to each of the five tax years NOLs arising from tax years beginning after December 31, 2017 and before January 1, 2020; and (iii) temporarily removes the 80% limitation on NOLs until tax years beginning after 2020. The CARES Act provisions did not have a material impact on the tax positions of the Company.
The following represented the domestic and foreign components of income from continuing operations before income taxes:
 Year Ended December 31,
(In millions)202120202019
U.S. $2,759 $749 $771 
Foreign100 12 15 
Total$2,859 $761 $786 
Reconciliations of the U.S. federal statutory tax rate to NRG's effective tax rate were as follows:
 Year Ended December 31,
(In millions, except effective income tax rate)202120202019
Income from continuing operations before income taxes$2,859 $761 $786 
Tax at federal statutory tax rate600 160 165 
Foreign rate differential (3)— — 
State taxes111 18 13 
Permanent differences8 8 (9)
Changes in valuation allowance(29)24 (3,492)
Deferred impact of state tax rate changes(10)2 12 
Recognition of uncertain tax benefits(10)3 (10)
Return to provision adjustments5 36 — 
Other— — (13)
Income tax expense/(benefit)$672 $251 $(3,334)
Effective income tax rate23.5 %33.0 %(424.2)%
For the year ended December 31, 2021, NRG's effective income tax rate was higher than the federal statutory tax rate of 21% primarily due to state tax expense partially offset by tax benefits from the revaluation of state deferred tax assets, valuation allowance, and settlements of uncertain tax positions.
For the year ended December 31, 2020, NRG's effective income tax rate was higher than the federal statutory tax rate of 21% primarily due to state tax expense, the recognition of state valuation allowance on NOLs, and return to provision adjustments.
For the year ended December 31, 2019, NRG's effective income tax rate was lower than the federal statutory tax rate of 21% primarily due to the tax benefit from the release of the valuation allowance.
The temporary differences, which gave rise to the Company's deferred tax assets and liabilities consisted of the following:
 As of December 31,
(In millions)20212020
Deferred tax assets:  
Deferred compensation, accrued vacation and other reserves$114 $79 
Difference between book and tax basis of property436 357 
Pension and other postretirement benefits65 86 
Equity compensation7 10 
Bad debt reserve168 16 
Derivatives, net— 11 
U.S. Federal net operating loss carryforwards1,773 2,117 
Foreign net operating loss carryforwards112 102 
State net operating loss carryforwards328 351 
Federal and state tax credit carryforwards384 384 
Federal benefit on state uncertain tax positions3 4 
Interest disallowance carryforward per §163(j) of the Tax Act6 4 
Inventory obsolescence9 6 
Other15 10 
Total deferred tax assets3,420 3,537 
Deferred tax liabilities:
Emissions allowances20 21 
Derivatives591 — 
Goodwill40 29 
Intangibles amortization (excluding goodwill)363 2 
Equity method investments62 156 
Convertible Debt14 16 
Total deferred tax liabilities1,090 224 
Total deferred tax assets less deferred tax liabilities 2,330 3,313 
Valuation allowance(248)(266)
Total net deferred tax assets, net of valuation allowance$2,082 $3,047 
The following table summarizes NRG's net deferred tax position as presented in the consolidated balance sheets:
 As of December 31,
(In millions)20212020
Deferred tax asset $2,155 $3,066 
Deferred tax liability(73)(19)
Net deferred tax asset$2,082 $3,047 
The primary drivers for the decrease in the net deferred tax asset from $3.0 billion as of December 31, 2020 to $2.1 billion as of December 31, 2021 are an increase in mark-to-market book gains and step-up in basis of book intangibles associated with the acquisition of Direct Energy.
Deferred tax assets and valuation allowance
Net deferred tax balance — As of December 31, 2021 and 2020, NRG recorded a net deferred tax asset, excluding valuation allowance, of $2.3 billion and $3.3 billion, respectively. The Company believes certain state net operating losses may not be realizable under the more-likely-than-not measurement and as such, a valuation allowance was recorded as of December 31, 2021 as discussed below.
NOL carryforwards — As of December 31, 2021, the Company had tax-effected cumulative U.S. NOLs consisting of carryforwards for federal and state income tax purposes of $1.8 billion and $328 million, respectively. The Company estimates it will need to generate future taxable income to fully realize the net federal deferred tax asset before the expiration of certain carryforwards commences in 2031. In addition, NRG has tax-effected cumulative foreign NOL carryforwards of $112 million with no expiration date.
 Valuation allowance — As of December 31, 2021, the Company's tax-effected valuation allowance was $248 million, consisting of state NOL carryforwards and foreign NOL carryforwards. The valuation allowance was recorded based on the assessment of cumulative and forecasted pre-tax book earnings and the future reversal of existing taxable temporary differences.
Taxes Receivable and Payable
As of December 31, 2021, NRG recorded a current net federal receivable of $16 million, comprised of refunds due from the IRS, a current net state tax payable of $13 million that is primarily comprised of Texas margin tax, and a current net foreign receivable of $11 million due to filings of Canadian amended returns as well as prepayments of estimated taxes.
Uncertain tax benefits
NRG has identified uncertain tax benefits with after-tax value of $13 million and $15 million as of December 31, 2021 and 2020, for which NRG has recorded a non-current tax liability of $14 million and $18 million, respectively. The Company recognizes interest and penalties related to uncertain tax benefits in income tax expense. The Company recognized an immaterial amount of interest expense for the year ended December 31, 2021, and $1 million for the years ended 2020 and 2019. As of December 31, 2021 and 2020, NRG had cumulative interest and penalties related to these uncertain tax benefits of $1 million and $3 million, respectively.
Tax jurisdictions — NRG is subject to examination by taxing authorities for income tax returns filed in the U.S. federal jurisdiction and various state and foreign jurisdictions including operations located in Australia and Canada.
The Company is no longer subject to U.S. federal income tax examinations for years prior to 2018. With few exceptions, state and Canadian income tax examinations are no longer open for years before 2013.
The following table summarizes uncertain tax benefits activity:
 As of December 31,
(In millions)20212020
Balance as of January 1$15 $15 
Increase due to current year positions4 3 
Increase due to acquired balance from Direct Energy9 — 
Settlements, payments and statute closure(15)(3)
Uncertain tax benefits as of December 31$13 $15