Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Income Tax Provision

The components of our consolidated income tax provision from continuing operations are as follows.

Income tax provision
	Years Ended December 31,
(In thousands)	2021		2020		2019
Current provision (benefit)	$	2,368	$	(16,264)	$	19,522
Deferred provision	161,793		102,079		157,162
Total income tax provision	$	164,161	$	85,815	$	176,684

The reconciliation of taxes computed at the statutory tax rate of 21% in 2021, 2020 and 2019 to the provision for income taxes is as follows.

Reconciliation of provision for income taxes
	Years Ended December 31,
(In thousands)	2021		2020		2019
Provision for income taxes computed at the statutory tax rate	$	160,615	$	100,683	$	178,289
Change in tax resulting from:
Valuation allowance	5,700		11,290		1,941
Uncertain tax positions	853		(14,784)		1,202
State tax benefit, net of federal impact	(1,714)		(9,062)		(293)
Other, net	(1,293)		(2,312)		(4,455)
Provision for income taxes	$	164,161	$	85,815	$	176,684

Deferred Tax Assets and Liabilities

The significant components of our net deferred tax assets and liabilities from continuing operations are summarized as follows.

Deferred tax assets and liabilities
	December 31,
(In thousands)	2021		2020
Deferred tax assets
State income taxes, net of federal impact	$	77,637	$	75,499
Goodwill and intangibles	29,744		32,673
Unearned premiums	23,699		27,703
Accrued expenses	16,584		11,140
Lease liability	11,240		11,214
Loss reserves	6,286		4,578
Other	18,967		25,066
Total deferred tax assets	$	184,157	$	187,873
Deferred tax liabilities
Contingency reserve	$	368,000	$	216,122
Net unrealized gain on investments	31,876		70,057
Depreciation	12,775		13,029
Differences in fair value of financial instruments	7,763		9,087
Other	17,824		15,747
Total deferred tax liabilities	438,238		324,042
Less: Valuation allowance	83,428		77,728
Net deferred tax asset (liability)	$	(337,509)	$	(213,897)

Current and Deferred Taxes

As of December 31, 2021, we recorded a net current federal income tax payable of $19.9 million, which primarily relates to applying the standards of accounting for uncertainty in income taxes.

Certain entities within our consolidated group have generated net deferred tax assets of approximately $76.1 million, relating primarily to state and local NOL carryforwards which, if unutilized, will expire during various future tax periods. We are required to establish a valuation allowance against our deferred tax assets when it is more likely than not that all or some portion of our deferred tax assets will not be realized. At each balance sheet date, we assess our need for a valuation allowance. Our assessment is based on all available evidence, both positive and negative. This requires management to exercise judgment and make assumptions regarding whether our deferred tax assets will be realized in future periods. We have determined that certain non-insurance entities within Radian may continue to generate taxable losses on a separate company basis in the near term and may not be able to fully utilize certain state and local NOLs on their state and local tax returns. Therefore, with respect to deferred tax assets relating to these state and local NOLs and other state timing adjustments, we retained a valuation allowance of $83.4 million at December 31, 2021 and $77.7 million at December 31, 2020.

As a mortgage guaranty insurer, we are eligible for a tax deduction, subject to certain limitations, under Internal Revenue Code Section 832(e) for amounts required by state law or regulation to be set aside in statutory contingency reserves. The deduction is allowed only to the extent that we purchase non-interest bearing U.S. Mortgage Guaranty Tax and Loss Bonds issued by the U.S. Department of the Treasury in an amount equal to the tax benefit derived from deducting any portion of our statutory contingency reserves. As of December 31, 2021, we held $354.1 million of these bonds, which are included as prepaid income taxes within other assets in our consolidated balance sheets. The corresponding deduction of our statutory contingency reserves resulted in the recognition of a net deferred tax liability. See Note 16 for additional information about our U.S. Mortgage Guaranty Tax and Loss Bonds.

Unrecognized Tax Benefits

As of December 31, 2021, we have $3.9 million of net unrecognized tax benefits, including $2.3 million of interest and penalties, that would affect the effective tax rate, if recognized. Our policy for the recognition of interest and penalties associated with uncertain tax positions is to record such items as a component of our income tax provision, of which $0.7 million and $0.3 million were recorded for the years ended December 31, 2021 and 2020, respectively.

A reconciliation of the beginning and ending gross unrecognized tax benefits is as follows.

Reconciliation of gross unrecognized tax benefits
	Years Ended December 31,
(In thousands)	2021		2020
Balance at beginning of period	$	20,249	$	37,208
Tax positions related to the current year:
Increases	267		250
Decreases	(858)		(1,788)
Tax positions related to prior years:
Increases	230		16,568
Decreases	—		(171)
Lapses of applicable statute of limitation	—		(31,818)
Balance at end of period	$	19,888	$	20,249

Our total unrecognized tax benefits decreased by $0.4 million from December 31, 2020 to December 31, 2021, primarily due to a net decrease in unrecognized tax benefits associated with our recognition of certain premium income. Over the next 12 months, our unrecognized tax benefits may decrease by approximately $1.2 million due to the expiration of the applicable statute of limitations relating to the 2018 tax year. The statute of limitations related to our federal consolidated income tax return remains open for tax years 2018-2021. Additionally, among the entities within our consolidated group, various tax years remain open to potential examination by state and local taxing authorities.