Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The following table summarizes income before income taxes and equity income:

	Years Ended December 31,
	2021		2020		2019
U.S. income	$	4,263	$	2,280	$	1,599
Non-U.S. income	572		275		339
Income before income taxes and equity income	$	4,835	$	2,555	$	1,938

Income Tax Expense	Years Ended December 31,
	2021		2020		2019
Current income tax expense
U.S. federal	$	669	$	129	$	—
U.S. state and local	233		143		16
Non-U.S.	136		67		81
Total current	1,038		339		97
Deferred income tax expense
U.S. federal	136		299		330
U.S. state and local	7		5		71
Non-U.S.	66		50		39
Total deferred	209		354		440
Total income tax provision	$	1,247	$	693	$	537

We have foreign subsidiaries with cumulative undistributed earnings that are indefinitely reinvested. Accordingly, no provision for U.S. income tax has been provided, and the unrecognized deferred tax liability is insignificant. An estimate of the undistributed earnings is $207 million and $373 million at December 31, 2021 and 2020.

A reconciliation between the U.S. federal statutory tax rate and the effective tax rate is as follows:

	Years Ended December 31,
	2021		2020		2019
U.S. federal statutory tax rate	21.0	%	21.0	%	21.0	%
Non-U.S. income taxed at other than the U.S. federal statutory rate	1.1		1.5		2.1
State and local income taxes	3.7		4.1		4.0
U.S. tax on non-U.S. earnings	(0.3)		0.4		1.1
Valuation allowance	0.4		0.3		0.5
Tax credits and incentives	—		(0.2)		(0.7)
Other	(0.1)		—		(0.3)
Effective tax rate	25.8	%	27.1	%	27.7	%

Deferred Income Tax Assets and Liabilities Deferred income tax assets and liabilities at December 31, 2021 and 2020 reflect the effect of temporary differences between amounts of assets, liabilities and equity for financial reporting purposes and the basis of such assets, liabilities and equity as measured by tax laws, as well as tax loss and tax credit carryforwards. The following table summarizes the components of temporary differences and carryforwards that give rise to deferred tax assets and liabilities:

	December 31, 2021		December 31, 2020
Deferred tax assets
Net operating loss carryforward - U.S.(a)	$	8	$	15
Net operating loss carryforward - non-U.S.(b)	150		150
Market value difference of loan portfolio	486		741
Accruals	140		86
Tax credits(c)	366		466
Other	211		282
Total deferred tax assets before valuation allowance	1,361		1,740
Less: valuation allowance	(306)		(291)
Total deferred tax assets	1,055		1,449
Deferred tax liabilities
Depreciable assets	1,933		2,038
Deferred acquisition costs	96		109
Other	135		160
Total deferred tax liabilities	2,164		2,307
Net deferred tax liability	$	(1,109)	$	(858)

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(a)Includes tax-effected state operating losses of $8 million expiring through 2041 at December 31, 2021.

(b)Includes tax-effected operating losses of $128 million expiring through 2041 and $22 million that may be carried forward indefinitely at December 31, 2021.

(c)Includes tax credits of $366 million expiring through 2041 at December 31, 2021.

As of December 31, 2021, we have $306 million in valuation allowances against deferred tax assets in U.S. jurisdictions. The increase in valuation allowance of $15 million is primarily due to an increase in foreign tax credits.

Unrecognized Tax Benefits	Years Ended December 31,
	2021		2020		2019
Beginning balance	$	62	$	57	$	50
Additions to prior years' tax positions	2		—		1
Reductions to prior years' tax positions	—		(1)		—
Additions to current year tax positions	12		6		7
Changes in tax positions due to lapse of statutory limitations	(6)		3		(1)
Foreign currency translation	—		(3)		—
Ending balance	$	70	$	62	$	57

At December 31, 2021, 2020 and 2019, there were $49 million, $40 million and $41 million of net unrecognized tax benefits that, if recognized, would favorably affect the effective tax rate.

We recognize accrued interest and penalties associated with uncertain tax positions as a component of the income tax provision. Accrued interest and penalties are included within other liabilities on the consolidated balance sheets.

At December 31, 2021 and 2020, we had liabilities of $54 million and $57 million for income tax-related interest and penalties.

At December 31, 2021, it is not possible to reasonably estimate the expected change to the total amount of unrecognized tax benefits in the next twelve months.

Other Matters We are included in GM's consolidated U.S. federal income tax returns and certain U.S. state returns, and we are obligated to pay GM for our share of these tax liabilities. Amounts owed to GM for income taxes are accrued and recorded as a related party payable. At December 31, 2021 and 2020, we had $282 million and $244 million in related party taxes payable for federal and state tax liabilities. The increase in federal tax liability is due to the full utilization of net operating loss carryforwards.

Income tax returns are filed in multiple jurisdictions and are subject to examination by taxing authorities throughout the world. We have open tax years from 2011 to 2021 with various tax jurisdictions. These open years contain matters that could be subject to differing interpretations of applicable tax laws and regulations as they relate to the amount, character, timing or inclusion of revenue and/or recognition of expenses, or the sustainability of income tax credits. Certain of our state and foreign tax returns are currently under examination in various jurisdictions.