Income Taxes

9 Months Ended

Sep. 30, 2020

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

For interim periods, we recognize income tax expense by applying the estimated annual effective income tax rate to year-to-date results unless this method does not result in a reliable estimate of year-to-date income tax expense. Each period, the income tax accrual is adjusted to the latest estimate, and the difference from the previously accrued year-to-date balance is adjusted to the current quarter. Changes in profitability estimates in various jurisdictions will impact our quarterly effective income tax rates.

The tax provision for income taxes for the nine months ended September 30, 2020, reflected an estimated annual tax rate of 26%, compared with 30% for the nine months ended September 30, 2019. The effective tax rate, including discrete items, for the three months ended September 30, 2020, was 25% compared to 85% for the comparable period in 2019. The effective tax rate, including discrete items, for the nine months ended September 30, 2020, was 27% compared to 23% for the comparable period in 2019. The increase in the year to date effective tax rate was primarily due to the effect of discrete items discussed below.

We recognized a net discrete tax expense of $3 million during the nine months ended September 30, 2020, primarily related to the surrender of a corporate-owned life insurance contract and a sale of ARS, partially offset by excess tax benefits from stock-based compensation. During the nine months ended September 30, 2019, we recognized a net discrete tax benefit of $4 million, primarily related to excess tax benefits from stock-based compensation.