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Income Taxes (Tables)

12 Months Ended

Dec. 31, 2018

The components of income tax expense for the years ended December 31 included in Credco’s Consolidated Statements of Income were as follows:

(Millions)				2018		2017		2016
Current income tax expense (benefit):
	U.S. federal		$	(14)	$	785	$	(4)
	U.S. state and local			(6)		15		(6)
	Non-U.S.			84		24		11
		Total current income tax expense		64		824		1
Deferred income tax (benefit) expense:
	U.S. federal			(28)		58		10
	U.S. state and local			1		1		1
	Non-U.S.			(8)		(5)		3
		Total deferred income tax (benefit) expense		(35)		54		14
Total income tax expense			$	29	$	878	$	15

Effective income tax rate

A reconciliation of the U.S. federal statutory rate of 21 percent as of December 31, 2018

		2018		2017		2016
U.S. statutory federal income tax rate		21.0	%	35.0	%	35.0	%
(Decrease) increase in taxes resulting from:
	State and local income taxes, net of federal benefit	(0.4)		(0.3)		(0.5)
	Non-U.S. subsidiaries earnings^(a)	(8.7)		(25.7)		(25.1)
	Tax settlements^(b)	―		(1.1)		(1.4)
	U.S. Tax Act^(c)	(5.6)		311.6		―
	Other^(d)	0.7		(0.2)		(0.9)
Actual tax rate		7.0	%	319.3	%	7.1	%

Results for 2018 reflect the reduction in the U.S. federal statutory tax rate and the impact of certain prior years’ tax item. Results for 2017 and 2016 primarily included tax benefits associated with the undistributed earnings of certain non-U.S. subsidiaries that were deemed to be reinvested indefinitely.
Relates to the resolution of tax matters in various jurisdictions.
Relates to the $858 million charge in 2017 for the impacts of the Tax Act and the adjustments thereto in 2018.
Results for all years include the impact of prior year tax returns filed in the current year.

Components of deferred tax assets and liabilities

The significant components of deferred tax assets and liabilities as of December 31 are reflected in the following table:

(Millions)				2018		2017
Deferred tax assets:
	Reserves not yet deducted for tax purposes		$	36	$	26
	State income taxes			7		5
	Foreign exchange loss			42		7
	Other			29		―
		Gross deferred tax assets		114		38
Deferred tax liabilities:
	Investment in foreign subsidiaries^(a)			77		105
		Gross deferred tax liabilities		77		105
Net deferred tax assets (liabilities)			$	37	$	(67)

Deferred state income and foreign withholding tax consequences of future cash distributions from non-U.S. subsidiaries.

Changes in unrecognized tax benefits

The following table presents changes in unrecognized tax benefits:

(Millions)				2018		2017		2016
Balance, January 1			$	24	$	308	$	211
	Increases:
		Current year tax positions		4		8		79
		Tax positions related to prior years		46		―		24
	Decreases:
		Tax positions related to prior years ^(a)		―		(289)		(1)
		Settlements with tax authorities		―		―		(1)
		Lapse of statute of limitations		(1)		(3)		(4)
Balance, December 31			$	73	$	24	$	308

Decrease due to the resolution with the IRS of an uncertain tax position in January 2017, which resulted in the recognition of $289 million in shareholder’s equity, specifically within AOCI.

Deemed repatriation tax payments due by year

		Payments due by year
(Millions)		2019		2020 - 2021		2022 - 2023		2024 and thereafter		Total
Deemed repatriation tax^(a)	$	63	$	116	$	116	$	436	$	731

(a) Represents Credco’s estimated obligation under the Tax Act to pay the deemed repatriation tax to American Express on certain non-U.S. earnings over eight years starting in 2018. This amount does not reflect other related non-cash accruals.