|9 Months Ended|
Sep. 30, 2021
|Income Tax Disclosure [Abstract]|
|Income Taxes||Income Taxes
The Company files U.S. federal, state and foreign income tax returns in jurisdictions with varying statutes of limitations. The Company is no longer subject to U.S. federal income tax examinations for years prior to 2016. In addition, with few exceptions, the Company is no longer subject to state, local or foreign income tax examinations for years prior to 2011.
The Company’s effective tax rate was 27.9% and (110.5)% for the three months ended September 30, 2021 and 2020; and 27.2% and 17.3% for the nine months ended September 30, 2021 and 2020. The effective tax rates during the three and nine months ended September 30, 2020 were significantly impacted by COVID-19, leading to a mix of earnings in higher tax rate jurisdictions and losses in lower tax rate jurisdictions that significantly reduced the Company’s overall effective tax rate in 2020. During the three months ended September 30, 2020, the Company reported a tax benefit on pre-tax income resulting from the true-up of applying the revised forecasted effective tax rate to the prior quarter’s losses.
The Company made income tax payments, net of tax refunds, of $91 million and $47 million during the nine months ended September 30, 2021 and 2020.
Tax positions are reviewed at least quarterly and adjusted as new information becomes available. The recoverability of deferred tax assets is evaluated by assessing the adequacy of future expected taxable income from all sources, including reversal of taxable temporary differences, available tax planning strategies and forecasted operating earnings. These estimates of future taxable income inherently require significant judgment. To the extent it is considered more likely than not that a deferred tax asset will be not recovered, a valuation allowance is established. Due to various factors including negative impacts of COVID-19, the Company had net increases in its valuation allowances related to foreign tax credits and other deferred assets of $3 million and $8 million during the nine months ended September 30, 2021 and 2020.
On March 11, 2021, the American Rescue Plan Act of 2021 (“ARPA”) was signed into law, which is the latest stimulus package to provide COVID-19 relief. ARPA includes an extension of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act Employee Retention Tax Credit until December 31, 2021. In addition to the expansion of the employee retention credit (among other provisions), ARPA includes several revenue-raising and business tax provisions. One such provision that will impact the Company is the expansion of the limitation of compensation deductions above $1 million for certain covered employees of publicly held corporations. Effective for taxable years after December 31, 2026, ARPA expands the limitation to cover the next five highest compensated employees.
On March 27, 2020, the CARES Act was established to provide emergency assistance and health care for individuals, families, and businesses affected by COVID-19 and generally support the U.S. economy. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, and technical corrections to tax depreciation methods for qualified improvement property. The Company has deferred certain social security payments and had additional depreciation deductions relating to qualified improvement property.
The Company recorded $3 million and $24 million of employee retention tax credits for the three and nine months ended September 30, 2020, and an additional $2 million of employee retention tax credits during the nine months ended September 30, 2021, including credits from similar programs outside the U.S.
While the Company continues to review and consider any available benefits under the CARES Act, ARPA, or similar legislation that may be enacted in response to COVID-19 for which it qualifies, the Company cannot predict the manner in which such benefits will be allocated or administered and cannot assure that it will be able to receive such benefits in a timely manner.
The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.
Reference 1: http://www.xbrl.org/2003/role/disclosureRef