Income Taxes

3 Months Ended

Mar. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

4. Income Taxes

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 with 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 reflected in common stock.

TEC’s effective tax rates for the three months ended March 31, 2022 and 2021 were 19.7% and 17.9%, respectively. The March 31, 2022 and 2021 effective tax rates are an estimate of the annual effective income tax rate. TEC’s effective tax rate for the three months ended March 31, 2022 and 2021 differed from the statutory rate principally due to the amortization of the regulatory tax liability resulting from tax reform. See Note 3 for further information regarding the regulatory tax liability.

Unrecognized Tax Benefits

As of March 31, 2022 and December 31, 2021, the amount of unrecognized tax benefits was $6 million, all of which was recorded as a reduction of deferred income tax assets for tax credit carryforwards. TEC had $6 million of unrecognized tax benefits at March 31, 2022 and December 31, 2021, that, if recognized, would reduce TEC’s effective tax rate.