Income Taxes

12 Months Ended

Dec. 31, 2020

Income Tax Disclosure [Abstract]

Income Taxes

Income taxes

JPMorgan Chase and its eligible subsidiaries file a consolidated U.S. federal income tax return. JPMorgan Chase uses the asset and liability method to provide income taxes on all transactions recorded in the Consolidated Financial Statements. This method requires that income taxes reflect the expected future tax consequences of temporary differences between the carrying amounts of assets or liabilities for book and tax purposes. Accordingly, a deferred tax asset or liability for each temporary difference is determined based on the tax rates that the Firm expects to be in effect when the underlying items of income and expense are realized. JPMorgan Chase’s expense for income taxes includes the current and deferred portions of that expense. A valuation allowance is established to reduce deferred tax assets to the amount the Firm expects to realize.

Due to the inherent complexities arising from the nature of the Firm’s businesses, and from conducting business and being taxed in a substantial number of jurisdictions, significant judgments and estimates are required to be made. Agreement of tax liabilities between JPMorgan Chase and the many tax jurisdictions in which the Firm files tax returns may not be finalized for several years. Thus, the Firm’s final tax-related assets and liabilities may ultimately be different from those currently reported.

Effective tax rate and expense

The following table presents a reconciliation of the applicable statutory U.S. federal income tax rate to the effective tax rate.

Effective tax rate
Year ended December 31,	2020		2019		2018
Statutory U.S. federal tax rate	21.0	%	21.0	%	21.0	%
Increase/(decrease) in tax rate resulting from:
U.S. state and local income taxes, net of U.S. federal income tax benefit	2.5		3.5		4.0
Tax-exempt income	(1.6)		(1.4)		(1.5)
Non-U.S. earnings	1.4		1.8		0.6
Business tax credits	(6.3)		(4.4)		(3.5)
Tax audit resolutions	—		(2.3)		(0.1)
Impact of the TCJA(a)	—		—		(0.7)
Other, net	0.7		—		0.5
Effective tax rate	17.7	%	18.2	%	20.3	%

(a)Represents changes in the estimates related to the remeasurement of certain deferred taxes and the deemed repatriation tax on non-U.S. earnings under SEC Staff Accounting Bulletin No. 118 which was completed in 2018.

The following table reflects the components of income tax expense/(benefit) included in the Consolidated statements of income.

Income tax expense/(benefit)
Year ended December 31, (in millions)	2020		2019		2018
Current income tax expense/(benefit)
U.S. federal	$	5,759	$	3,284	$	2,854
Non-U.S.	2,705		2,103		2,077
U.S. state and local	1,793		1,778		1,638
Total current income tax expense/(benefit)	10,257		7,165		6,569
Deferred income tax expense/(benefit)
U.S. federal	(3,184)		709		1,359
Non-U.S.	(126)		20		(93)
U.S. state and local	(671)		220		455
Total deferred income tax expense/(benefit)	(3,981)		949		1,721
Total income tax expense	$	6,276	$	8,114	$	8,290

Total income tax expense includes $72 million, $1.1 billion and $54 million of tax benefits recorded in 2020, 2019, and 2018, respectively, resulting from the resolution of tax audits.

Tax effect of items recorded in stockholders’ equity

The preceding table does not reflect the tax effect of certain items that are recorded each period directly in stockholders’ equity. The tax effect of all items recorded directly to stockholders’ equity resulted in a decrease of $827 million and $862 million in 2020 and 2019, respectively, and an increase of $172 million in 2018.

Results from Non-U.S. earnings

The following table presents the U.S. and non-U.S. components of income before income tax expense.

Year ended December 31, (in millions)	2020		2019		2018
U.S.	$	26,904	$	36,670	$	33,052
Non-U.S.(a)	8,503		7,875		7,712
Income before income tax expense	$	35,407	$	44,545	$	40,764

(a)For purposes of this table, non-U.S. income is defined as income generated from operations located outside the U.S.

The Firm will recognize any U.S. income tax expense it may incur on global intangible low tax income as income tax expense in the period in which the tax is incurred.Affordable housing tax creditsThe Firm recognized $1.5 billion of tax credits and other tax benefits associated with investments in affordable housing projects within income tax expense for each of the three years ended 2020, 2019 and 2018. The amount of amortization of such investments reported in income tax expense was $1.2 billion, $1.1 billion and $1.2 billion, respectively. The carrying value of these investments, which are reported in other assets on the Firm’s Consolidated balance sheets, was $9.7 billion and $8.6 billion at December 31, 2020 and 2019, respectively. The amount of commitments related to these investments, which are reported in accounts payable and other liabilities on the Firm’s Consolidated balance sheets, was $3.8 billion and $2.8 billion at December 31, 2020 and 2019, respectively.

Deferred taxes

Deferred income tax expense/(benefit) results from differences between assets and liabilities measured for financial reporting purposes versus income tax return purposes. Deferred tax assets are recognized if, in management’s judgment, their realizability is determined to be more likely than not. If a deferred tax asset is determined to be unrealizable, a valuation allowance is established. The significant components of deferred tax assets and liabilities are reflected in the following table.

December 31, (in millions)	2020		2019
Deferred tax assets
Allowance for loan losses	$	7,270	$	3,400
Employee benefits	1,104		1,039
Accrued expenses and other	3,332		2,767
Non-U.S. operations	849		949
Tax attribute carryforwards	757		605
Gross deferred tax assets	13,312		8,760
Valuation allowance	(560)		(557)
Deferred tax assets, net of valuation allowance	$	12,752	$	8,203
Deferred tax liabilities
Depreciation and amortization	$	3,329	$	2,852
Mortgage servicing rights, net of hedges	2,184		2,354
Leasing transactions	5,124		5,598
Other, net	6,025		4,683
Gross deferred tax liabilities	16,662		15,487
Net deferred tax (liabilities)/assets	$	(3,910)	$	(7,284)

JPMorgan Chase has recorded deferred tax assets of $757 million at December 31, 2020, in connection with U.S. federal and non-U.S. NOL carryforwards, FTC carryforwards, and state and local capital loss carryforwards. At December 31, 2020, total U.S. federal NOL carryforwards were $799 million, non-U.S. NOL carryforwards were $139 million, FTC carryforwards were $444 million, state and local capital loss carryforwards were $1.1 billion, and other federal tax attributes were $393 million. If not utilized, a portion of the U.S. federal NOL carryforwards and other U.S. federal tax attributes will expire between 2022 and 2037 whereas others have an unlimited carryforward period.

Similarly, certain non-U.S. NOL carryforwards will expire between 2026 and 2036 whereas others have an unlimited carryforward period. The FTC carryforwards will expire between 2029 and 2030, and the state and local capital loss carryforwards will expire between 2021 and 2022. 

The valuation allowance at December 31, 2020, was due to the state and local capital loss carryforwards, FTC carryforwards, and certain non-U.S. deferred tax assets, including NOL carryforwards.

Unrecognized tax benefits

At December 31, 2020, 2019 and 2018, JPMorgan Chase’s unrecognized tax benefits, excluding related interest expense and penalties, were $4.3 billion, $4.0 billion and $4.9 billion, respectively, of which $3.1 billion, $2.8 billion and $3.8 billion, respectively, if recognized, would reduce the annual effective tax rate. Included in the amount of unrecognized tax benefits are certain items that would not affect the effective tax rate if they were recognized in the Consolidated statements of income. These unrecognized items include the tax effect of certain temporary differences, the portion of gross state and local unrecognized tax benefits that would be offset by the benefit from associated U.S. federal income tax deductions, and the portion of gross non-U.S. unrecognized tax benefits that would have offsets in other jurisdictions. JPMorgan Chase is presently under audit by a number of taxing authorities, most notably by the Internal Revenue Service as summarized in the Tax examination status table below. As JPMorgan Chase is presently under audit by a number of taxing authorities, it is reasonably possible that over the next 12 months the resolution of these examinations may increase or decrease the gross balance of unrecognized tax benefits by as much as approximately $300 million. Upon settlement of an audit, the change in the unrecognized tax benefit would result from payment or income statement recognition.

The following table presents a reconciliation of the beginning and ending amount of unrecognized tax benefits.

Year ended December 31, (in millions)	2020		2019		2018
Balance at January 1,	$	4,024	$	4,861	$	4,747
Increases based on tax positions related to the current period	685		871		980
Increases based on tax positions related to prior periods	362		10		649
Decreases based on tax positions related to prior periods	(705)		(706)		(1,249)
Decreases related to cash settlements with taxing authorities	(116)		(1,012)		(266)
Balance at December 31,	$	4,250	$	4,024	$	4,861

After-tax interest expense/(benefit) and penalties related to income tax liabilities recognized in income tax expense were $147 million, $(52) million and $192 million in 2020, 2019 and 2018, respectively.

At December 31, 2020 and 2019, in addition to the liability for unrecognized tax benefits, the Firm had accrued $966 million and $817 million, respectively, for income tax-related interest and penalties.

Tax examination status

JPMorgan Chase is continually under examination by the Internal Revenue Service, by taxing authorities throughout the world, and by many state and local jurisdictions throughout the U.S. The following table summarizes the status of significant income tax examinations of JPMorgan Chase and its consolidated subsidiaries as of December 31, 2020.

	Periods under examination	Status
JPMorgan Chase – U.S.	2009 – 2013	Field examination of amended returns
JPMorgan Chase – U.S.	2014 - 2016	Field Examination
JPMorgan Chase – New York State	2012 - 2014	Field Examination
JPMorgan Chase – New York City	2012 - 2014	Field Examination
JPMorgan Chase – California	2011 – 2012	Field Examination
JPMorgan Chase – U.K.	2006 – 2018	Field examination of certain select entities