Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

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

	Years Ended December 31,
	2022		2021		2020
U.S. income	$	3,499	$	4,263	$	2,280
Non-U.S. income	404		572		275
Income before income taxes and equity income	$	3,903	$	4,835	$	2,555

Income Tax Expense	Years Ended December 31,
	2022		2021		2020
Current income tax expense
U.S. federal	$	342	$	669	$	129
U.S. state and local	85		233		143
Non-U.S.	80		136		67
Total current	507		1,038		339
Deferred income tax expense
U.S. federal	322		136		299
U.S. state and local	85		7		5
Non-U.S.	77		66		50
Total deferred	484		209		354
Total income tax provision	$	992	$	1,247	$	693

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 $390 million and $207 million at December 31, 2022 and 2021.

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

	Years Ended December 31,
	2022		2021		2020
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	0.9		1.1		1.5
State and local income taxes	3.2		3.7		4.1
U.S. tax on non-U.S. earnings	0.3		(0.3)		0.4
Valuation allowance	0.3		0.4		0.3
Tax credits and incentives	—		—		(0.2)
Other	(0.3)		(0.1)		—
Effective tax rate	25.4	%	25.8	%	27.1	%

Deferred Income Tax Assets and Liabilities Deferred income tax assets and liabilities at December 31, 2022 and 2021 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, 2022		December 31, 2021
Deferred tax assets
Net operating loss carryforward - U.S.(a)	$	2	$	8
Net operating loss carryforward - non-U.S.(b)	128		150
Market value difference of loan portfolio	—		486
Accruals	147		140
Tax credits(c)	383		366
Other	171		211
Total deferred tax assets before valuation allowance	830		1,361
Less: valuation allowance	(318)		(306)
Total deferred tax assets	513		1,055
Deferred tax liabilities
Depreciable assets	1,827		1,933
Deferred acquisition costs	97		96
Market value difference of loan portfolio	32		—
Other	141		135
Total deferred tax liabilities	2,098		2,164
Net deferred tax liability	$	(1,585)	$	(1,109)

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(a)At December 31, 2022, U.S. operating loss deferred tax assets were $2 million expiring through 2036, if not utilized.

(b)At December 31, 2022, non-U.S. operating loss deferred tax assets were $128 million, of which $23 million can be carried forward indefinitely and $105 million will expire by 2042, if not utilized..

(c)At December 31, 2022, U.S. tax credit carryforwards were $383 million expiring through 2042, if not utilized.

As of December 31, 2022, we have $318 million in valuation allowances against deferred tax assets in U.S. jurisdictions. The increase in valuation allowance of $12 million is primarily due to an increase in foreign tax credits.

Unrecognized Tax Benefits	Years Ended December 31,
	2022		2021		2020
Beginning balance	$	70	$	62	$	57
Additions to prior years' tax positions	—		2		—
Reductions to prior years' tax positions	(6)		—		(1)
Additions to current year tax positions	—		12		6
Changes in tax positions due to lapse of statutory limitations	(2)		(6)		3
Foreign currency translation	1		—		(3)
Ending balance	$	63	$	70	$	62

At December 31, 2022, 2021 and 2020, there were $51 million, $49 million and $40 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, 2022 and 2021, we had liabilities of $58 million and $54 million for income tax-related interest and penalties.

At December 31, 2022, 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 recorded as a related party payable. At December 31, 2022 and 2021, we had $8 million and $282 million in related party taxes payable for federal and state tax liabilities.

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 2010 to 2022 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.