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Income Taxes
 12 Months Ended
Dec. 31, 2023
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The components of income tax expense are as follows (in millions):
Year Ended December 31,
202320222021
Current:
Federal$(1)$— $(10)
State and local1 — — 
Current income tax expense (benefit)— — (10)
Deferred:
Federal41 (7)(32)
State and local2 (1)(1)
Foreign— — 1 
Deferred income tax expense (benefit)43 (8)(32)
Total income tax expense (benefit)$43 $(8)$(42)
The income tax provision differs from that computed at the federal statutory corporate tax rate as follows:
Year Ended December 31,
202320222021
U.S. federal statutory income tax rate21.0 %21.0 %21.0 %
State taxes, net of federal benefit1.4 1.7 1.6 
Valuation allowance115.8 — — 
Employee benefits6.6 (1.6)— 
State refund adjustment3.7 — — 
Executive compensation limitation3.6 (3.9)(0.5)
Change in state effective rate0.9 0.8 — 
Return to provision adjustment— (2.9)— 
Nondeductible warrants— — (3.5)
Other non-deductible expenses1.4 — — 
Excess tax benefits of stock-based compensation(17.2)1.2 5.2 
Reserves for uncertain tax positions, net(3.0)0.6 6.2 
Other0.2 0.9 (0.8)
Effective income tax rate134.4 %17.8 %29.2 %
The effective tax rate for the year ended December 31, 2023 is higher than the statutory rate, primarily due to the establishment of valuation allowances against the Company’s U.S. Federal and State net operating loss (“NOL”) carryforwards and limitations on the deductibility of employee benefits and compensation provided to certain executives pursuant to Internal Revenue Code section 162(m), partially offset by windfall benefits recognized on the exercise of stock options. The effective tax rate for the year ended December 31, 2022 is lower than the statutory rate, primarily due to limitations on compensation provided to certain executives pursuant to Internal Revenue Code section 162(m) and return to provision adjustments, partially offset by state taxes, net of federal benefit and excess tax benefits of stock-based compensation. The effective tax rate for the year ended December 31, 2021 was greater than the statutory rate, primarily attributable to the release of the reserves related to uncertain tax positions for which the statute of limitations has expired and excess tax benefits associated with the Company’s stock-based compensation arrangements, partially offset by non-deductible interest from the mark to market adjustments from the warrants issued to the Treasury as part of the Company’s participation in the PSPs and the Treasury Loan.
The Company had net tax payments/(refunds) of less than $1 million, less than $1 million and $(158) million for the years ended December 31, 2023, 2022 and 2021, respectively.
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial statement and income tax purposes. The following table shows the components of the Company’s deferred tax assets and liabilities (in millions):
December 31,
20232022
Deferred tax assets:
Operating lease liability$669 $568 
Net operating losses75 50 
Nondeductible accruals30 42 
Deferred revenue16 14 
Income tax credits2 1 
Valuation allowance(48)(8)
Other13 10 
Deferred tax assets$757 $677 
Deferred tax liabilities:
Right-of-use asset$(658)$(559)
Property and equipment(55)(41)
Maintenance deposits(19)(24)
Intangibles(6)(6)
Other(27)(14)
Deferred tax liabilities(765)(644)
Net deferred tax assets (liabilities)$(8)$33 
As of December 31, 2023, the Company’s net deferred tax liability balance was $8 million, and was classified within other long-term liabilities on the Company’s consolidated balance sheet. This balance included $75 million of deferred tax assets related to NOL carry forwards which are made up of $53 million of federal NOLs, which do not expire, $11 million of state NOLs, which expire from one year to having no expiration, and $11 million of foreign NOLs, which expire in seven years. The Company recognizes a valuation allowance when it is more likely than not that some portion, or all, of the Company’s deferred tax assets, will not be realized. The Company considers sources of taxable income from prior period carryback periods, future reversals of existing taxable temporary differences, tax planning strategies and future taxable income when assessing the future utilization of deferred tax assets.
The Company considers all available positive and negative evidence in determining the need for a valuation allowance. A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the three-year period ended December 31, 2023. Such objective evidence limits the ability to consider other subjective evidence, such as projections for future profitability to utilize deferred tax assets.
The Company concluded that as of December 31, 2023, it is more likely than not that the benefit from a portion of its federal, state and foreign deferred tax assets will not be realized. Accordingly, the Company recorded a valuation allowance of $37 million against its deferred tax assets for U.S. Federal and State NOL carryforwards, which reflects the impact of expected income generated as a result of future reversals of existing taxable temporary differences. Further, the Company recorded a valuation allowance of $3 million related to its foreign deferred tax asset NOLs during 2023, which was fully offset by a corresponding reversal of a U.S. federal deferred tax liability.
The following table shows the components of the Company’s unrecognized tax benefits related to uncertain tax positions (in millions):
202320222021
Unrecognized tax benefits at January 1$1 $1 $10 
Decrease for tax positions taken during prior period(1)— (9)
Increase for tax positions taken during current period— — — 
Unrecognized tax benefits at December 31$— $1 $1 
In December of 2021, the Company received its federal tax refund related to the Company carrying back its 2020 losses to previous year’s tax returns that included certain unrecognized tax positions. Upon receipt of the 2020 tax year refund, the previous year’s tax returns effectively are considered closed and, as the statute of limitations reverted back at that time to its original expiry, the Company released any reserve related to tax periods where the statute of limitations would have lapsed.
It is reasonably possible that the amount of unrecognized tax benefit could change within the next 12 months, as the statute of limitations remains open for three preceding tax years; however, the Company has not identified any unrecognized tax benefits as of December 31, 2023. Should the amount of unrecognized tax benefit change, the Company will accrue interest related to unrecognized tax benefits in its provision for income taxes, and any associated penalties in other operating expenses. The amounts recorded in the Company’s consolidated financial statements related to interest and penalties were less than $1 million for each of the years ended December 31, 2023, 2022 and 2021.
The Company files its tax returns as prescribed by the tax laws of the jurisdictions in which it operates yearly. The Company's federal income tax returns for tax years 2020 and forward remain open. Additionally, various tax years remain open to examination by state and local taxing jurisdictions.