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Income Taxes
 12 Months Ended
Dec. 31, 2024
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The following table reconciles the statutory federal tax rate with the effective tax rate for the periods presented below.
TABLE 89: INCOME TAXES
FOR THE YEAR ENDED DECEMBER 31,
202420232022
Statutory Federal Tax Rate21.0 %21.0 %21.0 %
State Taxes, net2.5 3.4 3.3 
Foreign Tax Rate Differential0.3 0.6 0.1 
Excess Tax Benefit Related to Share-Based Compensation— (0.1)(0.2)
Tax Credits(0.7)(2.7)(2.0)
Tax Exempt Income(0.8)(1.4)(0.9)
Valuation Allowance1.4 1.8 1.5 
Other, net(0.1)1.8 1.6 
Effective Tax Rate23.6 %24.4 %24.4 %
Income tax expense for the year ended December 31, 2024, 2023, and 2022 was $628.4 million, $357.5 million, and $430.3 million, representing an effective tax rate of 23.6%, 24.4%, and 24.4% respectively.
For the year ended December 31, 2024, the decrease in the effective tax rate was primarily driven by higher current year benefits and a lower state tax provision, partially offset by a lower level of tax benefits from tax-credit investments.
The Corporation files income tax returns in the U.S. federal, various state, and foreign jurisdictions. The Corporation is no longer subject to income tax examinations by U.S. federal tax authorities before 2015, U.S. state or local tax authorities for years before 2011, or non-U.S. tax authorities for years before 2015.
Included in Other Liabilities on the consolidated balance sheets at December 31, 2024 and 2023 were $58.5 million and $60.7 million of unrecognized tax benefits, respectively. If recognized, the amounts would reduce 2024 and 2023 income tax expense by $51.9 million and $54.4 million, respectively. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows.
TABLE 90: UNRECOGNIZED TAX BENEFITS
(In Millions)202420232022
Balance at January 1$60.7 $40.7 $25.3 
Additions for Tax Positions Taken in the Current Year2.0 2.1 1.7 
Additions for Tax Positions Taken in Prior Years10.8 24.0 13.7 
Reductions for Tax Positions Taken in Prior Years(10.9)(5.1)— 
Reductions Resulting from Settlements with Taxing Authorities(2.5)— — 
Reductions Resulting from Expiration of Statutes(1.6)(1.0)— 
Balance at December 31$58.5 $60.7 $40.7 
It is possible that changes in the amount of unrecognized tax benefits could occur in the next 12 months due to changes in judgment related to recognition or measurement, settlements with taxing authorities, or expiration of statute of limitations. Management does not believe that future changes, if any, would have a material effect on the consolidated financial position or liquidity of Northern Trust, although they could have a material effect on operating results for a particular period.
A benefit for interest and penalties of $4.7 million, net of tax, was included in the Provision for Income Taxes for the year ended December 31, 2024. This compares to a provision for interest and penalties of $0.2 million, net of tax, and a provision of $11.1 million, net of tax, for the year ended December 31, 2023 and 2022, respectively. As of December 31, 2024 and 2023, the liability for the potential payment of interest and penalties totaled $16.0 million and $22.7 million, net of tax, respectively.
The components of the consolidated Provision for Income Taxes for each of the three years ended December 31 are as follows.
TABLE 91: PROVISION FOR INCOME TAXES
FOR THE YEAR ENDED DECEMBER 31,
(In Millions)202420232022
Current Tax Provision:
Federal$400.2 $250.5 $357.7 
State66.7 63.2 84.7 
Non-U.S.140.8 92.0 130.6 
Total$607.7 $405.7 $573.0 
Deferred Tax Provision:
Federal$(1.1)$(54.0)$(126.0)
State17.5 (1.4)(10.7)
Non-U.S.4.3 7.2 (6.0)
Total$20.7 $(48.2)$(142.7)
Provision for Income Taxes$628.4 $357.5 $430.3 
In addition to the amounts shown above, tax charges (benefits) have been recorded directly to Stockholders’ Equity for the following. For further detail, refer to Note 14, “Accumulated Other Comprehensive Income (Loss).”
TABLE 92: TAX CHARGES (BENEFITS) RECORDED DIRECTLY TO STOCKHOLDERS’ EQUITY
FOR THE YEAR ENDED DECEMBER 31,
(In Millions)202420232022
Tax Effect of Other Comprehensive Income$156.5 $120.2 $(471.3)
Deferred taxes result from temporary differences between the amounts reported on the consolidated financial statements and the tax bases of assets and liabilities. Deferred tax assets and liabilities have been computed as follows.
TABLE 93: DEFERRED TAX ASSETS AND LIABILITIES
DECEMBER 31,
(In Millions)20242023
Deferred Tax Liabilities:
Software Development419.9 394.9 
Depreciation and Amortization— 23.9 
Compensation and Benefits9.5 — 
State Taxes, net46.7 46.8 
Other Liabilities85.2 53.4 
Gross Deferred Tax Liabilities561.3 519.0 
Deferred Tax Assets:
Depreciation and Amortization38.4 — 
Allowance for Credit Losses43.2 46.2 
Unrealized Losses on Securities, net143.3 244.6 
Compensation and Benefits— 70.2 
Tax Credit and Loss Carryforwards157.9 121.2 
Other Assets117.2 116.0 
Gross Deferred Tax Assets500.0 598.2 
Valuation Reserve(157.9)(121.2)
Deferred Tax Assets, net of Valuation Reserve342.1 477.0 
Net Deferred Tax Assets (Liabilities)$(219.2)$(42.0)
The Corporation generated a foreign tax credit carryforward during the years ended December 31, 2024 and 2023, expiring in 2034 and 2033, respectively. A cumulative valuation allowance related to the credit carryforward of $157.5 million and $120.7 million was recorded at December 31, 2024 and 2023, respectively, as management believes the foreign tax credit carryforwards will not be fully realized.
Northern Trust had various state net operating loss carryforwards as of December 31, 2024 and 2023. The income tax benefits associated with these loss carryforwards were approximately $0.4 million as of both December 31, 2024 and 2023. A valuation allowance related to the loss carryforwards of $0.4 million was recorded at both December 31, 2024 and 2023, as management believes the net operating losses will not be fully realized.