Income Taxes

12 Months Ended

Dec. 31, 2019

Income tax expense (benefit) consisted of the following for the periods indicated:



	Year Ended December 31,
	2019			2018			2017
Current tax expense (benefit):
Federal	$	126		$	123		$	(128	)
State	1			(2		)	—
Total current tax expense (benefit)	127			121			(128		)
Deferred tax expense (benefit):
Federal	(335		)	(84		)	812
State	3			—			3
Total deferred tax expense (benefit)	(332		)	(84		)	815
Total income tax expense (benefit)	$	(205	)	$	37		$	687

Income taxes were different from the amount computed by applying the federal income tax rate to Income (loss) before income taxes for the following reasons for the periods indicated:



	Year Ended December 31,
	2019			2018			2017
Income (loss) before income taxes	$	560		$	528		$	385
Tax Rate	21.0		%	21.0		%	35.0		%
Income tax expense (benefit) at federal statutory rate	118			111			135
Tax effect of:
Valuation allowance	(250		)	(15		)	(28		)
Dividend received deduction	(37		)	(49		)	(40		)
Audit settlement	—			—			—
State tax expense (benefit)	1			10			4
Noncontrolling interest	(10		)	(30		)	(76		)
Tax credits	(33		)	—			14
Nondeductible expenses	1			4			2
Expirations of federal tax capital loss carryforward	—			—			2
Effect of Tax Reform	—			8			679			*
Other	5			(2		)	(5		)
Income tax expense (benefit)	$	(205	)	$	37		$	687
Effective tax rate	(36.6		)%	7.0		%	178.4		%

*Effect of Tax Reform includes a tax benefit of $283 related to change in valuation allowance

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act ("Tax Reform"). Tax Reform made broad changes to U.S. federal tax law, including, but not limited to (1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) changing the computations of the dividends received deduction, tax reserves, and deferred acquisition costs; (3) further limiting deductibility of executive compensation; (4) eliminating the net operating loss ("NOL") carryback and limiting the NOL carryforward deduction to 80% of taxable income for losses arising in taxable years beginning after December 31, 2017; and (5) changing how alternative minimum tax (AMT) credits can be realized. Tax Reform eliminated the corporate AMT and allows the AMT credit carryforward to be refunded over the next 4 years. Any refundable corporate AMT credit is not subject to the sequestration requirements of the Balanced Budget and Emergency Deficit Control Act of 1985, as amended.

Temporary Differences

The tax effects of temporary differences that give rise to deferred tax assets and deferred tax liabilities were as follows as of the dates indicated:



	December 31,
	2019			2018
Deferred tax assets
Federal and state loss carryforwards	$	2,147		$	2,051
Investments	189			246
Insurance reserves	—			187
Compensation and benefits	269			295
Other assets	132			124
Total gross assets before valuation allowance	2,737			2,903
Less: Valuation allowance	388			638
Assets, net of valuation allowance	2,349			2,265

Deferred tax liabilities
Net unrealized investment gains	(769		)	(145		)
Insurance reserves	(45		)	—
Deferred policy acquisition costs	(66		)	(493		)
Other liabilities	(11		)	(17		)
Total gross liabilities	(891		)	(655		)
Net deferred income tax asset (liability)	$	1,458		$	1,610

The following table sets forth the federal, state and capital loss carryforwards for tax purposes as of the dates indicated:



	December 31,
	2019			2018
Federal net operating loss carryforward	$	9,591	⁽¹⁾	$	9,319
State net operating loss carryforward	2,849		⁽²⁾	2,244
Federal tax capital loss carryforward	17		⁽³⁾	—
Credit carryforward	73		⁽⁴⁾	34

⁽¹⁾Approximately $5,882 of the net operating losses carryforwards ("NOL") not subject to expiration. Remaining NOLs expire between 2020 and 2037.

⁽²⁾ Approximately $362 of the NOLs not subject to expiration. Remaining NOLs expire between 2020 and 2040.

⁽³⁾ Expires in 2024.

⁽⁴⁾ Expires between 2020 and 2039.

Valuation allowances are provided when it is considered more likely than not that some portion or all of the deferred tax assets will not be realized. As of December 31, 2019 and 2018, the Company had a total valuation allowance of $388 and $638, respectively. As of December 31, 2019 and 2018, $742 and $992, respectively, of this valuation allowance was allocated to continuing operations, and $(354) and $(354) allocated to Other comprehensive income (loss) related to realized and unrealized capital losses, respectively.

In our assessment of the valuation allowance for the year ended December 31, 2019, we determined that it is more likely than not that $250 of additional deferred tax asset will be realized. As a result, we recorded a valuation allowance release of $250, all of which was allocated to continuing operations.

For the year ended December 31, 2018, the decrease in the valuation allowance was $15, all of which was allocated to continuing operations. The net decrease in the valuation allowance was a result of the utilization of certain capital losses subject to a valuation allowance as well as state apportionment changes for certain state deferred tax assets subject to a valuation allowance.

For the year ended December 31, 2017, the decrease in the valuation allowance was $311, all of which was allocated to continuing operations.The net decrease in the valuation allowance was primarily related to the reduction in the U.S. federal corporate tax rate from 35% to 21%, and expiration of foreign tax credits subject to a valuation allowance.

Unrecognized Tax Benefits

Reconciliations of the change in the unrecognized income tax benefits were as follows for the periods indicated:



	Year Ended December 31,
	2019			2018			2017
Balance at beginning of period	$	33		$	37		$	36
Additions for tax positions related to current year	1			2			2
Additions for tax positions related to prior years	—			1			—
Reductions for tax positions related to prior years	(2		)	(1		)	—
Reductions for settlements with taxing authorities	—			(6		)	—
Reductions for expiring statutes	—			—			(1		)
Balance at end of period	$	32		$	33		$	37

The Company had $1, $1, and $8 of unrecognized tax benefits as of December 31, 2019, 2018 and 2017, respectively, which would affect the Company's effective rate if recognized.

Interest and Penalties

The Company recognizes interest expense and penalties, if applicable, related to unrecognized tax benefits in tax expense net of federal income tax. The total amounts of gross accrued interest and penalties on the Company's Consolidated Balance Sheets as of December 31, 2019 and 2018 were immaterial. The Company recognized no gross interest (benefit) related to unrecognized tax in its Consolidated Statements of Operations for the years ended December 31, 2019, 2018 and 2017.

The timing of the payment of the remaining accrued interest and penalties cannot be reasonably estimated.

Tax Regulatory Matters

For the tax years 2017 through 2020, Voya Financial, Inc. participates in the IRS Compliance Assurance Process (CAP), which is a continuous audit program provided by the IRS. The IRS finalized the audit of Voya Financial, Inc. for the periods ended December 31, 2017 and December 31, 2018. For the periods ended December 31, 2019 and December 31, 2020, the IRS has determined that Voya Financial, Inc. would be in the Compliance Maintenance Bridge (Bridge) phase of CAP. In the Bridge phase, the IRS does not intend to conduct any review or provide any letters of assurance for the tax year.