Income Taxes

3 Months Ended

Mar. 31, 2023

Income Taxes

Income Taxes

4.    Income Taxes

Our effective income tax rate was 23.6% and 23.5% for the three months ended March 31, 2023 and 2022, respectively. We evaluate our effective income tax rate at each interim period and adjust it as facts and circumstances warrant.

Equity-Based Compensation — During the three months ended March 31, 2023, and 2022, we recognized a reduction in our income tax expense of $7 million and $10 million, respectively, for excess tax benefits related to the vesting or exercise of equity-based compensation awards.

Adjustments to Accruals and Related Deferred Taxes — There were no adjustments to accruals and related deferred taxes during the three months ended March 31, 2023. During the three months ended March 31, 2022, we recognized an increase in our income tax expense of $3 million for adjustments to accruals and related deferred taxes.

Investments Qualifying for Federal Tax Credits — We have significant financial interests in entities established to invest in and manage low-income housing properties. We support the operations of these entities in exchange for a pro-rata

share of the tax credits they generate. The low-income housing investments qualify for federal tax credits that we expect to realize through 2033 under Section 42 or Section 45D of the Internal Revenue Code.

We account for our investments in these entities using the equity method of accounting, recognizing our share of each entity’s results of operations and other reductions in the value of our investments in equity in net losses of unconsolidated entities, within our Condensed Consolidated Statements of Operations. During the three months ended March 31, 2023 and 2022, we recognized $13 million and $14 million of net losses, respectively, and a reduction in our income tax expense of $22 million and $23 million, respectively, primarily due to federal tax credits realized from these investments as well as the tax benefits from the pre-tax losses realized. In addition, during the three months ended March 31, 2023 and 2022, we recognized interest expense of $4 million and $3 million, respectively, associated with our investments in low-income housing properties. See Note 12 for additional information related to these unconsolidated variable interest entities.