Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

4. Income Taxes

CARES Act

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law. The CARES Act includes several business provisions including deferral in employer payroll taxes and an employee retention payroll tax credit. On December 27, 2020, the Consolidated Appropriations Act, 2021 (the 2021 Act) was signed into law. The 2021 Act provides for modifications and expansion of the employee retention payroll tax credit enacted under the CARES Act. The 2021 Act also extends the solar ITC for two years. These laws did not have a material impact on TEC’s financial statements.

Employee Retention Payroll Tax Credit

On March 11, 2021, the American Rescue Plan Act of 2021 was signed into law. This law included an extension of the employee retention payroll tax credit through December 31, 2021. On November 15, 2021, the Infrastructure Investment and Jobs Act, which provides for termination of the employee retention payroll tax credit as of September 30, 2021, was signed into law. These laws did not have a material impact on TEC’s financial statements.

Change in Florida Corporate Income Tax Rate

On September 14, 2021, the state of Florida issued a corporate tax rate reduction from 4.46% to 3.53% effective January 1, 2021 through December 31, 2021. In 2021, TEC recorded a $4 million regulatory liability in recognition of its obligation to pass the tax rate reduction expense benefit to customers per the 2017 settlement agreement.

Income Tax Expense

TEC is included in a consolidated U.S. federal income tax return with EUSHI and its subsidiaries. TEC’s income tax expense is based upon a separate return method, modified for the benefits-for-loss allocation in accordance with respective tax sharing agreements of TECO Energy and EUSHI. To the extent that TEC’s cash tax positions are settled differently than the amount reported as realized under the tax sharing agreement, the difference is accounted for as either a capital contribution or a distribution.

In 2021, 2020 and 2019, TEC recorded net tax provisions of $80 million, $82 million and $77 million, respectively.

Income tax expense consists of the following components:

Income Tax Expense (Benefit)

(millions)
For the year ended December 31,	2021			2020			2019
Current income taxes
Federal	$	48		$	35		$	56
State		4			(7	)		6
Deferred income taxes
Federal		24			32			7
State		13			29			13
Investment tax credits amortization		(9	)		(7	)		(5	)
Total income tax expense	$	80		$	82		$	77

For the three years presented, the overall effective tax rate differs from the U.S. federal statutory rate as presented below:

Effective Income Tax Rate

(millions)
For the year ended December 31,	2021			2020			2019
Income before provision for income taxes	$	526		$	506		$	447
Federal statutory income tax rates		21	%		21	%		21	%
Income taxes, at statutory income tax rate		110			106			94
Increase (decrease) due to
State income tax, net of federal income tax		13			17			15
Excess deferred tax amortization		(26	)		(26	)		(25	)
ITC amortization		(9	)		(7	)		(5	)
AFUDC-equity		(9	)		(6	)		(2	)
Tax credits		(3	)		(8	)		(1	)
Other		4			6			1
Total income tax expense on consolidated statements of income	$	80		$	82		$	77
Income tax expense as a percent of income before income taxes		15.2	%		16.2	%		17.2	%

Deferred Income Taxes

Deferred taxes result from temporary differences in the recognition of certain liabilities or assets for tax and financial reporting purposes. The principal components of TEC’s deferred tax assets and liabilities recognized in the balance sheet are as follows:

(millions)
As of December 31,	2021		2020
Deferred tax liabilities (1)
Property related	$	1,210	$	1,121
Pension and postretirement benefits		98		116
Total deferred tax liabilities		1,308		1,237
Deferred tax assets (1)
Loss and credit carryforwards (2)		340		301
Medical benefits		26		27
Insurance reserves		15		16
Pension and postretirement benefits		46		66
Capitalized energy conservation assistance costs		20		18
Other		3		26
Total deferred tax assets		450		454
Total deferred tax liability, net	$	858	$	783

(1)Certain property related assets and liabilities have been netted.

(2)Deferred tax assets for net operating loss and tax credit carryforwards have been reduced by unrecognized tax benefits of $6 million and $9 million at December 31, 2021 and 2020, respectively.

At December 31, 2021, TEC had cumulative unused federal and Florida NOLs for income tax purposes of $312 million and $83 million, respectively, expiring between 2032 and 2037. TEC has unused general business credits of $286 million expiring between 2027 and 2041, of which $264 million relate to ITCs expiring between 2034 and 2041. As a result of TECO Energy's merger with Emera in 2016, TECs NOLs and credits will be utilized by EUSHI, in accordance with the benefits-for-loss allocation which provide that tax attributes are utilized by the consolidated tax return group of EUSHI.

Unrecognized Tax Benefits

TEC accounts for uncertain tax positions as required by U.S. GAAP. This guidance addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Authoritative guidance related to accounting for uncertainty in income taxes requires an enterprise to recognize in its financial statements the best estimate of the impact of a tax position by determining if the weight of the available evidence indicates that it is more likely than not, based solely on the technical merits, that the position will be sustained upon examination, including resolution of any related appeals and litigation processes.

The following table provides details of the change in unrecognized tax benefits as follows:

(millions)	2021			2020			2019
Balance at January 1,	$	9		$	9		$	8
Decreases due to tax positions related to prior year	0				(2	)	0
Increases due to tax positions related to prior year	1			1			1
Increases due to tax positions related to current year	1			1			0
Decreases due to settlements with tax authorities		(5	)	0			0
Balance at December 31,	$	6		$	9		$	9

As of December 31, 2021 and 2020, TEC’s uncertain tax positions for federal R&D tax credits were $6 million and $9 million, respectively, all of which was recorded as a reduction of deferred income tax assets for tax credit carryforwards. TEC’s unrecognized federal tax benefits decreased in 2021 and 2020 by approximately $5 million and $2 million, respectively, due to the resolution of its 2016 federal tax credits issue with IRS Appeals. The recognition of the 2020 tax benefits decreased the effective tax rate resulting in an income tax benefit of approximately $2 million in 2020. The settlement of the federal R&D credits audit did not impact the effective tax rate during 2021. TEC had $6 million and $9 million of unrecognized tax benefits at December 31, 2021 and 2020, respectively, that, if recognized, would reduce TEC’s effective tax rate.

TEC recognizes interest accruals related to uncertain tax positions in “Other income” or “Interest expense”, as applicable, and penalties in “Operation and maintenance expense” in the Consolidated Statements of Income. In 2021, 2020 and 2019, TEC did not recognize any pre-tax charges (benefits) for interest. Additionally, TEC did not have any accrued interest or amounts recorded for penalties at December 31, 2021, 2020 and 2019.

The IRS concluded the Compliance Assurance Program (CAP) audit for the short tax year ending June 30, 2016 and the EUSHI 2016 federal consolidated tax return, which includes TEC's short tax year ending December 31, 2016. The U.S. federal statute of limitations remains open for the year 2017 and forward. Florida’s statute of limitations is three years from the filing of an income tax return. The state impact of any federal changes remains subject to examination by various states for a period of up to one year after formal notification to the states. Years still open to examination by Florida’s tax authorities include 2005 and forward as a result of TECO Energy’s consolidated Florida net operating loss still being utilized.