INCOME TAXES

12 Months Ended

Dec. 31, 2020

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

The provision for income taxes consisted of the following for the years ended December 31, 2020, 2019 and 2018:

	2020		2019		2018
	(in millions)
Current provision:
Federal	$	1,019	$	560	$	139
States and Puerto Rico	93		41		58
Total current provision	1,112		601		197
Deferred expense	195		162		194
Provision for income taxes	$	1,307	$	763	$	391

The provision for income taxes was different from the amount computed using the federal statutory rate for the years ended December 31, 2020, 2019 and 2018 due to the following:

	2020		2019		2018
	(in millions)
Income tax provision at federal statutory rate	$	982	$	729	$	436
States, net of federal benefit, and Puerto Rico	63		49		42
Tax exempt investment income	(5)		(6)		(11)
Health insurance industry fee	268		—		243
Nondeductible executive compensation	19		25		17
Tax reform	—		—		(39)
KMG sale	—		—		(272)
Other, net	(20)		(34)		(25)
Provision for income taxes	$	1,307	$	763	$	391

The tax reform law enacted on December 22, 2017, or Tax Reform Law, reduced the statutory federal corporate income tax rate to 21 percent from 35 percent, beginning in 2018, and required a mandatory deemed repatriation of undistributed foreign earnings. The rate reduction required a remeasurement of our net deferred tax asset. Revisions to our prior estimate for the income tax effects of the Tax Reform Law decreased our 2018 tax provision by approximately $39 million.

Due to a higher tax basis in KMG than book basis the incremental tax benefit on the sale of KMG of $272 million resulted from a tax loss higher than the loss recorded in the statement of income for the year ended December 31, 2018. In addition, the amount reflects our ability to carryback the capital loss to tax years 2015, 2016 and 2017 at the historical tax rate of 35 percent instead of the current tax rate of 21 percent.

Deferred income tax balances reflect the impact of temporary differences between the tax bases of assets or liabilities and their reported amounts in our consolidated financial statements, and are stated at enacted tax rates expected to be in effect when the reported amounts are actually recovered or settled.

Principal components of our net deferred tax balances at December 31, 2020 and 2019 were as follows:

	Assets (Liabilities)
	2020		2019
	(in millions)
Compensation and other accrued expense	$	171	$	111
Benefits payable	87		89
Net operating loss carryforward	32		42
Deferred acquisition costs	26		22
Unearned revenues	12		8
Other	11		8
Capital loss carryforward	—		1
Total deferred income tax assets	339		281
Valuation allowance	(37)		(45)
Total deferred income tax assets, net of valuation allowance	302		236
Depreciable property and intangible assets	(449)		(329)
Investment securities	(418)		(181)
Prepaid expenses	(91)		(64)
Future policy benefits payable	(3)		(3)
Total deferred income tax liabilities	(961)		(577)
Total net deferred income tax liabilities	$	(659)	$	(341)

All deferred tax liabilities and assets are classified as noncurrent in our consolidated balance sheets as other long-term liabilities at December 31, 2020 and 2019.

At December 31, 2020, we had approximately $86 million of net operating losses to carry forward. These loss carryforwards, if not used to offset future taxable income, will expire from 2024 through 2031. Due to limitations and uncertainty regarding our ability to use some of the loss carryforwards and certain other deferred tax assets, a valuation allowance of $37 million was established. For the remainder of the net operating loss carryforwards and other cumulative temporary differences, based on our historical record of producing taxable income and profitability, we have concluded that future operating income will be sufficient to recover these deferred tax assets.

We file income tax returns in the United States and Puerto Rico. The U.S. Internal Revenue Service, or IRS, has completed its examinations of our consolidated income tax returns for 2017 and prior years. Our 2018 and 2019 tax returns are in the post-filing review period under the Compliance Assurance Process, or CAP. Our 2020 tax return is under advance review by the IRS under CAP. With a few exceptions, which are immaterial in the aggregate, we no longer are subject to state, local and foreign tax examinations for years before 2017. We are not aware of any material adjustments that may be proposed as a result of any ongoing or future examinations. We do not have material uncertain tax positions reflected in our consolidated balance sheets.