Income Taxes

6 Months Ended

Jun. 30, 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 six months ended June 30, 2022 and 2021 were 20.5% and 16.1%, respectively. The June 30, 2022 and 2021 effective tax rates are an estimate of the annual effective income tax rate. TEC’s effective tax rate for the six months ended June 30, 2022 and 2021 differed from the statutory rate principally due to the amortization of the regulatory tax liability resulting from tax reform. The effective tax rate for the six months ended June 30, 2022 is higher compared to the same period in 2021 primarily due to lower tax benefit from the amortization of the regulatory tax liability and lower amortization of investment tax credits. See Note 3 for further information regarding the regulatory tax liability.

Unrecognized Tax Benefits

As of June 30, 2022 and December 31, 2021, the amount of unrecognized tax benefits was $7 million and $6 million, respectively, all of which was recorded as a reduction of deferred income tax assets for tax credit carryforwards. TEC had $7 million and $6 million of unrecognized tax benefits at June 30, 2022 and December 31, 2021, respectively, that, if recognized, would reduce TEC’s effective tax rate.