Income Taxes

6 Months Ended

Jun. 30, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Our estimated annual effective tax rate as of June 30, 2021 reflects the current U.S. federal tax rate of 21%, research and development tax credits, and other miscellaneous permanent adjustments. After considering discrete adjustments primarily driven by reductions in the valuation allowance, the actual effective income tax rates for the six and three months ended June 30, 2021 are 126.1% and (3.3)%. The actual effective tax rates were 38.4% and 30.0% for the comparable periods in the prior year.

The actual effective income tax rate of 126.1% for the six months ended June 30, 2021 is significantly higher than the comparable period in the prior year due primarily to the near breakeven year-to-date pre-tax loss of $23 for the six months ended June 30, 2021 in relation to permanent tax adjustments and discrete items during the current period. In the three months ended June 30, 2021, discrete tax benefits primarily driven by reductions in the valuation allowance more than offset ongoing tax expense resulting in an actual effective income tax rate of (3.3)%.

The 2020 tax rates include tax benefits from the CARES Act enacted on March 27, 2020 that included a five-year net operating loss carryback provision which enabled us to benefit certain 2020 losses and remeasure certain deferred tax assets and liabilities at the former federal tax rate of 35%. The 2020 tax rates also include research and development tax credits and excess tax benefits related to share-based payments.

As of June 30, 2021 and December 31, 2020, the Company had recorded valuation allowances of $3,034 and $3,094 primarily for certain federal deferred tax assets, state net operating loss carryforwards, and state tax credits. To measure the valuation allowance, the Company estimated in what year each of its deferred tax assets and liabilities would reverse using systematic and logical methods to estimate the reversal patterns. Based on these methods, deferred tax liabilities were assumed to reverse and generate taxable income over the next 5 to 10 years while deferred tax assets related to pension and other postretirement benefit obligations were assumed to reverse and generate tax deductions over the next 15 to 20 years. The valuation allowance primarily resulted from not having sufficient income from deferred tax liability reversals in the appropriate future periods to support the realization of certain deferred tax assets.

As of June 30, 2021, based on the estimated reversal patterns of the Company’s deferred tax assets and liabilities, it is more likely than not that the Company will realize the federal deferred tax assets generated in 2021 as there is sufficient projected income from reversals of deferred tax liabilities in the next five years.

Federal income tax audits have been settled for all years prior to 2018. The Internal Revenue Service (IRS) began the 2018-2019 federal tax audit in the first quarter of 2021. We are also subject to examination in major state and international jurisdictions for the 2007-2019 tax years. We believe appropriate provisions for all outstanding tax issues have been made for all jurisdictions and all open years.