Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Income TaxesWe use an asset-and-liability approach to account for income taxes. Our objective is to recognize the amount of taxes payable or refundable for the current year through charges or credits to the current tax provision, and to recognize deferred tax assets and liabilities for future tax consequences of temporary differences between amounts reported in our consolidated financial statements and their respective tax bases. The measurement of tax assets and liabilities is based on enacted tax laws and applicable tax rates. The effects of a tax position on our consolidated financial statements are recognized when we believe it is more likely than not that the

position will be sustained. A valuation allowance is established if it is considered more likely than not that all or a portion of the deferred tax assets will not be realized. Deferred tax assets and liabilities recorded in our consolidated statement of condition are netted within the same tax jurisdiction.

The following table presents the components of income tax expense (benefit) for the periods indicated: 

	Years Ended December 31,
(In millions)	2022		2021		2020
Current:
Federal	$	161	$	172	$	241
State	112		142		122
Non-U.S.	342		326		310
Total current expense	615		640		673
Deferred:
Federal	(16)		(98)		(168)
State	(2)		(61)		5
Non-U.S.	(44)		(3)		(31)
Total deferred expense (benefit)	(62)		(162)		(194)
Total income tax expense (benefit)	$	553	$	478	$	479

The following table presents a reconciliation of the U.S. statutory income tax rate to our effective tax rate based on income before income tax expense for the periods indicated:

	Years Ended December 31,
	2022		2021		2020
U.S. federal income tax rate	21.0	%	21.0	%	21.0	%
Changes from statutory rate:
State taxes, net of federal benefit	3.1		2.2		3.8
Tax-exempt income	(1.0)		(1.1)		(1.3)
Business tax credits(1)	(4.0)		(4.1)		(5.1)
Foreign tax differential	—		0.1		(0.8)
Foreign tax credit (benefits)/ limitations(2)	(0.1)		(1.9)		(0.9)
Change in Valuation Allowance	(2.0)		—		—
Other, net	(0.4)		(1.1)		(0.2)
Effective tax rate	16.6	%	15.1	%	16.5	%

(1) Business tax credits include low-income housing, production and investment tax credits.

(2) Foreign tax credit (benefits)/limitations includes the period expense for global intangible low-taxed income (GILTI).

Undistributed indefinitely reinvested earnings of certain foreign subsidiaries amounted to approximately $6.6 billion at December 31, 2022. As a result, no provision has been recorded for state and local or foreign withholding income taxes. If a distribution were to occur, we would be subject to state, local and to foreign withholding tax. It is expected that any distribution will be exempt from federal income tax. Although the foreign withholding tax is generally creditable against U.S. federal income tax, certain credit utilization limitations may result in a net cost.

The following table presents significant components of our gross deferred tax assets and gross deferred tax liabilities as of the dates indicated:

	December 31,
(In millions)	2022		2021
Deferred tax assets:
Other amortizable assets	$	267	$	323
Tax credit carryforwards	530		526
Lease obligations	198		217
Deferred compensation	127		158
Restructuring charges and other reserves	118		88
NOL and other carryforwards	152		118
Pension plan	18		28
Foreign currency translation	74		16
Unrealized losses on investment securities, net	750		17
Total deferred tax assets	2,234		1,491
Valuation allowance for deferred tax assets	(160)		(250)
Deferred tax assets, net of valuation allowance	$	2,074	$	1,241
Deferred tax liabilities:
Fixed and intangible assets	$	597	$	601
Investment basis differences	188		200
Right-of-use Assets	163		172
Other	21		58
Total deferred tax liabilities	$	969	$	1,031

The table below summarizes the deferred tax assets and related valuation allowances recognized as of December 31, 2022:

(In millions)	Deferred Tax Asset		Valuation Allowance		Expiration
Other amortizable assets	$	267	$	(93)	None
Tax credits	530		—		2033-2042
NOLs - Non-U.S.	127		(48)		2026-2042, None
NOLs - U.S.	22		(16)		2023-2041, None
Other carryforwards	3		(3)		None

Management considers the valuation allowance adequate to reduce the total deferred tax assets to an aggregate amount that will more likely than not be realized. Management has determined that a valuation allowance is not required for the remaining deferred tax assets because it is more likely than not that there will be sufficient taxable income of the appropriate nature within the carryforward periods to realize these assets.

At December 31, 2022, 2021 and 2020, the gross unrecognized tax benefits, excluding interest, were $285 million, $252 million and $308 million, respectively. Of this, the amounts that would reduce the effective tax rate, if recognized, are $272 million, $243 million and $294 million, respectively. The reduction in the effective tax rate includes the federal benefit for unrecognized state tax benefits.

The following table presents activity related to unrecognized tax benefits as of the dates indicated:

	December 31,
(In millions)	2022		2021		2020
Beginning balance	$	252	$	308	$	149
Decrease related to agreements with tax authorities	(4)		(130)		—
Increase related to tax positions taken during current year	48		50		47
Increase related to tax positions taken during prior years	8		42		137
Decreases related to a lapse of the applicable statute of limitations	(19)		(18)		(25)
Ending balance	$	285	$	252	$	308

It is reasonably possible that of the $285 million of unrecognized tax benefits as of December 31, 2022, up to $63 million could decrease within the next 12 months due to agreements with tax authorities and the expiration of statutes of limitations. Management believes that we have sufficient accrued liabilities as of December 31, 2022 for tax exposures and related interest expense.

Income tax expense included related interest and penalties of approximately $8 million, $6 million and $6 million in 2022, 2021 and 2020, respectively. Total accrued interest and penalties were approximately $15 million, $9 million and $14 million as of December 31, 2022, 2021 and 2020, respectively.