Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

Income Tax Provision

Components of income tax (provision) benefit
	Year Ended December 31,
(in millions)	2021		2020		2019
Current tax (provision) benefit:
Federal	$	—	$	94	$	94
State and local	(1)		3		(39)
International	(3)		(5)		(13)
Deferred tax (provision) benefit:
Federal	(130)		2,766		(1,343)
State and local	16		344		(130)
Income tax (provision) benefit	$	(118)	$	3,202	$	(1,431)

The following table presents the principal reasons for the difference between the effective tax rate and the U.S. federal statutory income tax rate:

Reconciliation of statutory federal income tax rate to the effective income tax rate
	Year Ended December 31,
	2021		2020		2019
U.S. federal statutory income tax rate	21.0	%	21.0	%	21.0	%
State taxes, net of federal benefit	(4.4)		1.9		2.3
Permanent differences	4.9		(0.6)		(0.3)
Valuation allowance	9.1		(2.6)		0.7
Other	(0.8)		0.8		(0.6)
Effective income tax rate	29.8	%	20.5	%	23.1	%

Deferred Taxes

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting and income tax purposes.

Significant components of deferred income tax assets and liabilities
	December 31,
(in millions)	2021		2020
Deferred tax assets:
Net operating loss carryforwards	$	1,301	$	1,495
Capital loss carryforward	480		483
Pension, postretirement and other benefits	2,089		2,956
Investments	314		—
Deferred revenue	2,288		1,929
Lease liabilities	2,452		2,185
Other	494		479
Valuation allowance	(833)		(460)
Total deferred tax assets	$	8,585	$	9,067
Deferred tax liabilities:
Depreciation	$	4,463	$	4,507
Operating lease assets	1,676		1,324
Intangible assets	1,097		1,076
Other	55		172
Total deferred tax liabilities	$	7,291	$	7,079
Net deferred tax assets	$	1,294	$	1,988

As of December 31, 2021, we had approximately $4.8 billion of U.S. federal pre-tax net operating loss carryforwards, of which $1.1 billion was generated prior to 2018 and will not begin to expire until 2029. Under current tax law, the remaining amount has no expiration.

Valuation Allowance

We periodically assess whether it is more likely than not that we will generate sufficient taxable income to realize our deferred income tax assets. We establish valuation allowances if it is more likely than not that we will be unable to realize our deferred income tax assets. In making this determination, we consider available positive and negative evidence and make certain assumptions. We consider, among other things, projected future taxable income, scheduled reversals of deferred tax liabilities, the overall business environment, our historical financial results and tax planning strategies.

At December 31, 2021 our net deferred tax asset balance was $1.3 billion, including an $833 million valuation allowance primarily related to capital loss carryforwards and certain state net operating losses. Although we have recent cumulative losses, we have a history of significant earnings prior to the onset of the COVID-19 pandemic. While we expect to return to sustained profitability as the effects of the pandemic subside and to generate sufficient taxable income to utilize our federal net operating loss carryforwards before any expire, the generation of future taxable income is dependent on many factors, including those which are out of our control, such as the demand for air travel and overall health of the economy. As such, there are no guarantees that a valuation allowance will not be required against some or all of our deferred tax assets in future periods.

Our federal net operating loss carryforwards generated before 2018 do not begin to expire until 2029. Under current tax law, federal net operating losses generated after 2017 do not expire. Therefore, we have not recorded a valuation allowance on our deferred tax assets other than the capital loss carryforwards and certain state net operating losses that have short expiration periods.

The following table presents the balance of our valuation allowance on our deferred income tax assets and the associated activity:

Valuation allowance activity
(in millions)	2021		2020
Balance at January 1	$	460	$	58
Tax provision	26		402
Equity investment activity	347		—
Balance at December 31	$	833	$	460

Other

The amount of, and changes to, our uncertain tax positions were not material in any of the years presented. We are currently under audit by the IRS for the 2021 and 2020 tax years.