Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Income Tax Provisions

Our provision for federal and foreign income tax expense for continuing operations consisted of the following (in millions):

	2021		2020		2019
Federal income tax expense (benefit):
Current	$	1,325	$	1,292	$	698
Deferred	(194)		21		235
Total federal income tax expense	1,131		1,313		933
Foreign income tax expense (benefit):
Current	93		50		91
Deferred	11		(16)		(13)
Total foreign income tax expense	104		34		78
Total federal and foreign income tax expense	$	1,235	$	1,347	$	1,011

State income taxes are included in our operations as general and administrative costs and, under U.S. Government regulations, are allowable costs in establishing prices for the products and services we sell to the U.S. Government. Therefore, a substantial portion of state income taxes is included in our net sales and cost of sales. As a result, the impact of certain transactions on our operating profit and of other matters presented in these consolidated financial statements is disclosed net of state income taxes. Our total net state income tax expense was $195 million for 2021, $197 million for 2020, and $96 million for 2019.

A reconciliation of the U.S. federal statutory income tax expense to actual income tax expense for continuing operations is as follows (dollars in millions):

	2021				2020				2019
	Amount		Rate		Amount		Rate		Amount		Rate
Income tax expense at the U.S. federal statutory tax rate	$	1,585	21.0	%	$	1,729	21.0	%	$	1,521	21.0	%
Foreign derived intangible income deduction	(170)		(2.3)		(170)		(2.1)		(122)		(1.7)
Research and development tax credit	(118)		(1.6)		(97)		(1.2)		(148)		(2.0)
Tax deductible dividends	(65)		(0.9)		(64)		(0.8)		(62)		(0.9)
Excess tax benefits for stock-based payment awards	(28)		(0.4)		(52)		(0.6)		(63)		(0.9)
Other, net (a)	31		0.6		1		0.1		(115)		(1.5)
Income tax expense	$	1,235	16.4	%	$	1,347	16.4	%	$	1,011	14.0	%

(a)Includes additional $98 million deduction for foreign derived intangible income related to 2018 recognized in 2019 reflecting proposed tax regulations released on March 4, 2019.

We recognized a tax benefit of $170 million in 2021 and $191 million in 2020 from the deduction for foreign derived intangible income enacted by the Tax Cuts and Jobs Act of 2017 (the “Tax Act”).

We recognized $118 million of research and development tax credits in 2021 due to increased qualifying activity.

We receive a tax deduction for dividends paid on shares of our common stock held by certain of our defined contribution plans with an employee stock ownership plan feature. The amount of the tax deduction has increased as we increased our dividend over the last three years, partially offset by a decline in the number of shares in these plans.

Uncertain Tax Positions

As of December 31, 2021 and 2020, our liabilities associated with unrecognized tax benefits were not material.

Deferred Income Taxes

The primary components of our federal and foreign deferred income tax assets and liabilities at December 31 were as follows (in millions):

	2021		2020
Deferred tax assets related to:
Pensions	$	1,985	$	2,994
Accrued compensation and benefits	957		926
Contract accounting methods	470		392
Foreign company operating losses and credits	40		51
Other (a)	473		509
Valuation allowance	(15)		(13)
Deferred tax assets, net	3,910		4,859
Deferred tax liabilities related to:
Goodwill and intangible assets	401		363
Property, plant and equipment	518		481
Exchanged debt securities and other (a)	709		547
Deferred tax liabilities	1,628		1,391
Net deferred tax assets	$	2,282	$	3,468

(a)Includes deferred tax assets and liabilities related to lease liability and ROU asset.

We and our subsidiaries file federal income tax returns in the U.S. and income tax returns in various foreign jurisdictions. With few exceptions, the statute of limitations for these jurisdictions is no longer open for audit or examination for the years before 2015, other than with respect to refunds.

We participate in the IRS Compliance Assurance Process program. Examinations of the years 2018 to 2021 remain under IRS review. We are also subject to taxation in various states and foreign jurisdictions including Australia, Canada, India, Italy,

Japan, Poland, and the United Kingdom. We are under, or may be subject to, audit or examination and additional assessments by the relevant authorities.Our federal and foreign income tax payments, net of refunds, were $1.4 billion in both 2021 and 2020, and $940 million in 2019.