Income Taxes

12 Months Ended

Dec. 31, 2021

Income Taxes

Income Taxes

Note 15—Income Taxes

The Company files U.S. federal and state corporate income tax returns for PFSI and partnership returns for PNMAC. The Company’s federal tax returns are subject to examination for 2018 and forward and its state tax returns are generally subject to examination for 2017 and forward. PNMAC’s federal partnership returns are subject to examination for 2018 and forward, and its state tax returns are generally subject to examination for 2017 and forward. The returns of both the Company and PNMAC are in the initial stages of an examination by New York State for years 2019 and 2020. We do not expect any material changes from this examination.

The following table details the Company’s provision for income taxes:

	Year ended December 31,
	2021		2020		2019
	(in thousands)
Current expense:
Federal	$	101,659	$	378,984	$	17,661
State		39,551		128,495		8,071
Total current expense		141,210		507,479		25,732
Deferred expense:
Federal		160,587		61,592		85,296
State		53,896		24,654		25,451
Total deferred expense		214,483		86,246		110,747
Total provision for income taxes	$	355,693	$	593,725	$	136,479

The following table is a reconciliation of the Company’s provision for income taxes at statutory rates to the provision for income taxes at the Company’s effective tax rate:

	Year ended December 31,
	2021		2020		2019
Federal income tax statutory rate	21.0	%	21.0	%	21.0	%
State income taxes, net of federal benefit	5.4	%	5.5	%	5.6	%
Tax rate revaluation	—	%	(0.1)	%	(0.6)	%
Other	(0.2)	%	0.1	%	(0.2)	%
Effective income tax rate	26.2	%	26.5	%	25.8	%

The components of the Company’s provision for deferred income taxes are as follows:

	Year ended December 31,
	2021		2020		2019
	(in thousands)
Mortgage servicing rights	$	196,697	$	128,471	$	91,592
Reserves and losses		15,736		(33,477)		(2,945)
California franchise taxes		10,753		(15,200)		—
Additional tax basis in partnership from exchanges of partnership units into the Company's common stock		4,420		5,200		4,269
Compensation accruals		(11,456)		(647)		(12,286)
Net operating loss		—		581		23,445
Other		(1,717)		1,318		6,106
Tax credits		50		—		566
Total provision for deferred income taxes	$	214,483	$	86,246	$	110,747

The components of Income taxes payable are as follows:

	December 31,
	2021		2020
	(in thousands)
Income taxes currently (receivable) payable	$	(126,542)	$	25,379
Deferred income tax liability, net		811,804		597,321
Income taxes payable	$	685,262	$	622,700

The tax effects of temporary differences that gave rise to deferred income tax assets and liabilities are presented below:

	December 31,
	2021		2020
	(in thousands)
Deferred income tax assets:
Compensation accruals	$	53,141	$	41,685
Additional tax basis in partnership from exchanges of partnership units into the Company's common stock		30,277		34,697
Reserves and losses		47,275		63,011
California franchise tax		4,447		15,200
Net operating loss carryforward		1,077		1,077
Income tax credits carryforward		—		50
Gross deferred income tax assets		136,217		155,720
Deferred income tax liabilities:
Mortgage servicing rights		933,803		737,106
Other		14,218		15,935
Gross deferred income tax liabilities		948,021		753,041
Net deferred income tax liability	$	811,804	$	597,321

The Company recorded a deferred tax asset of $1.1 million related to California’s net operating loss carryforwards, which were incurred in 2018 and expire in 2038. A newly signed law allows the utilization of this remaining net operating loss starting in 2022, which was previously suspended until 2023 under the California budget deal. All of the federal net operating loss carryforward has been fully utilized in 2019.

At December 31, 2021 and 2020, the Company had no unrecognized tax benefits and does not anticipate any unrecognized tax benefits. Should the recognition of any interest or penalties relative to unrecognized tax benefits be necessary, it is the Company’s policy to record such expenses in the Company’s income tax accounts. No such accruals existed at December 31, 2021 and 2020.