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Income Taxes | 12 Months Ended
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Dec. 31, 2022
Income Tax Disclosure [Abstract] |
Income Taxes | NOTE 13: INCOME TAXES Income Before Income Taxes. The sources of income (loss) from continuing operations before income taxes are:
(dollars in millions) | 2022 |  | 2021 |  | 2020
United States | $ | 4,061 |  |  | $ | 3,498 |  |  | $ | (2,762) |
Foreign | 1,966 |  |  | 1,433 |  |  | 409 |
Income (loss) from continuing operations before income taxes | $ | 6,027 |  |  | $ | 4,931 |  |  | $ | (2,353) |
The Company no longer intends to reinvest certain undistributed earnings of its international subsidiaries that have been previously taxed in the U.S. As such, we recorded the taxes associated with the future remittance of these earnings. For the remainder of the Company’s undistributed international earnings, unless tax effective to repatriate, the Company will continue to permanently reinvest these earnings. As of December 31, 2022, such undistributed earnings were approximately $18 billion, excluding other comprehensive income amounts. It is not practicable to estimate the amount of tax that might be payable on the remaining amounts. Provision for Income Taxes. The income tax expense (benefit) for the years ended December 31 are as follows:
(dollars in millions) | 2022 |  | 2021 |  | 2020
Current: |  |  |  |  |
United States: |  |  |  |  |
Federal | $ | 1,724 |  |  | $ | 387 |  |  | $ | 324 |
State | 126 |  |  | 60 |  |  | 45 |
Foreign | 513 |  |  | 427 |  |  | 305 |
| 2,363 |  |  | 874 |  |  | 674 |
Future: |  |  |  |  |
United States: |  |  |  |  |
Federal | (1,399) |  |  | (26) |  |  | (264) |
State | (166) |  |  | 41 |  |  | 258 |
Foreign | (98) |  |  | (103) |  |  | (93) |
| (1,663) |  |  | (88) |  |  | (99) |
Income tax expense | $ | 700 |  |  | $ | 786 |  |  | $ | 575 |
Reconciliation of Effective Income Tax Rate. Differences between effective income tax rates and the statutory U.S. federal income tax rate are as follows:
| 2022 |  | 2021 |  | 2020
(dollars in millions) | Amount | Rate |  | Amount | Rate |  | Amount | Rate
Statutory U.S. federal income tax rate | $ | 1,266 |  | 21.0 | % |  | $ | 1,036 |  | 21.0 | % |  | $ | (494) |  | 21.0 | %
Tax on international activities | (186) |  | (3.1) |  |  | (204) |  | (4.1) |  |  | 27 |  | (1.1) |
Tax charges related to Separation Transactions and Raytheon merger | — |  | — |  |  | (39) |  | (0.8) |  |  | 416 |  | (17.7) |
Disposals of businesses | — |  | — |  |  | 108 |  | 2.2 |  |  | 177 |  | (7.5) |
U.S. research and development credit | (164) |  | (2.7) |  |  | (172) |  | (3.5) |  |  | (142) |  | 6.1 |
Goodwill impairment | — |  | — |  |  | — |  | — |  |  | 668 |  | (28.4) |
State income tax, net | (12) |  | (0.2) |  |  | 33 |  | 0.7 |  |  | (56) |  | 2.4 |
Foreign Derived Intangible Income | (214) |  | (3.5) |  |  | (121) |  | (2.5) |  |  | (83) |  | 3.5 |
U.K. corporate tax rate enactment | — |  | — |  |  | 73 |  | 1.5 |  |  | 8 |  | (0.4) |
Other | 10 |  | 0.1 |  |  | 72 |  | 1.4 |  |  | 54 |  | (2.3) |
Effective income tax rate | $ | 700 |  | 11.6 | % |  | $ | 786 |  | 15.9 | % |  | $ | 575 |  | (24.4) | %
The 2022 effective tax rate includes a benefit of $214 million related to the Foreign Derived Intangible Income (FDII) benefit, $207 million associated with legal entity and operational reorganizations implemented in 2022, and $164 million associated with U.S. research and development credits. The increase in the FDII benefit from 2021 is primarily attributable to the capitalization of research or experimental expenditures for tax-purposes, enacted as part of the Tax Cuts and Jobs Act of 2017 effective beginning January 1, 2022. The 2021 effective tax rate includes tax benefits of $244 million included in international activities associated with legal entity and operational reorganizations implemented in 2021, $172 million associated with U.S. research and development credits and $121 million associated with FDII, and tax charges of $73 million associated with the revaluation of deferred taxes resulting from the increase in the U.K. corporate tax rate to 25% enacted in 2021. In the first quarter of 2021, we recorded $148 million of tax charges associated with the sale of the Forcepoint business, and subsequently recognized a $104 million tax benefit due to the revaluation of that tax benefit as a result of completing the divestiture of RIS’s global training and services business for a gain in the fourth quarter of 2021. The 2020 negative effective tax rate is a result of having tax expense of $575 million on a loss from continuing operations before income taxes of $2.4 billion. The loss from continuing operations before income taxes in 2020 includes the $3.2 billion goodwill impairment as described in “Note 2: Business Acquisitions, Dispositions, Goodwill and Intangible Assets,” most of which was non-deductible for tax purposes. Tax expense includes net deferred tax charges of $416 million resulting from the Separation Transactions and the Raytheon merger primarily related to the impairment of deferred tax assets and the revaluation of certain international tax incentives, and incremental tax expense of $177 million related to the disposal of businesses, including the sales of businesses at Collins, the airborne tactical radios business at RIS and the entry into a definitive agreement to sell Forcepoint, as described in “Note 2: Business Acquisitions, Dispositions, Goodwill and Intangible Assets.” Also included in the 2020 effective tax rate are tax benefits of $142 million associated with U.S. research and development credits and $83 million associated with FDII. Deferred Tax Assets and Liabilities. The tax effects of temporary differences and tax carryforwards which gave rise to future income tax benefits and payables at December 31, 2022 and 2021 are as follows:
(dollars in millions) | 2022 |  | 2021
Future income tax benefits: |  |  |
Insurance and employee benefits | $ | 1,126 |  |  | $ | 1,831 |
Inventory and contract balances | 639 |  |  | 756 |
Warranty provisions | 242 |  |  | 248 |
Capitalization of research and experimental expenditures | 1,712 |  |  | — |
Other basis differences | 828 |  |  | 878 |
Tax loss carryforwards | 305 |  |  | 251 |
Tax credit carryforwards | 970 |  |  | 1,088 |
Valuation allowances | (842) |  |  | (825) |
Total future income tax benefits | $ | 4,980 |  |  | $ | 4,227 |
Future income taxes payable: |  |  |
Goodwill and intangible assets | $ | 6,588 |  |  | $ | 7,168 |
Fixed assets | 1,751 |  |  | 1,746 |
Other basis differences | 220 |  |  | 323 |
Total future income tax payable | $ | 8,559 |  |  | $ | 9,237 |
Valuation allowances have been established primarily for tax credit carryforwards, tax loss carryforwards, and certain temporary differences to reduce the future income tax benefits to expected realizable amounts. Tax Credit and Loss Carryforwards. At December 31, 2022, tax credit carryforwards, principally state and foreign, and tax loss carryforwards, principally state and foreign, were as follows:
(dollars in millions) | Tax Credit Carryforwards |  | Tax Loss Carryforwards
Expiration period: |  |  |
2023-2027 | $ | 54 |  |  | $ | 292 |
2028-2032 | 73 |  |  | 174 |
2033-2042 | 337 |  |  | 318 |
Indefinite | 506 |  |  | 1,357 |
Total | $ | 970 |  |  | $ | 2,141 |
Unrecognized Tax Benefits. At December 31, 2022, we had gross tax-effected unrecognized tax benefits of $1,515 million, of which $1,378 million, if recognized, would impact the effective tax rate. A reconciliation of the beginning and ending amounts of unrecognized tax benefits and interest expense related to unrecognized tax benefits for the years ended December 31, 2022, 2021 and 2020 is as follows:
(dollars in millions) | 2022 |  | 2021 |  | 2020
Balance at January 1 | $ | 1,458 |  |  | $ | 1,225 |  |  | $ | 1,347 |
Additions for tax positions related to the current year | 106 |  |  | 110 |  |  | 125 |
Additions for tax positions of prior years | 23 |  |  | 282 |  |  | 323 |
Reductions for tax positions of prior years | (56) |  |  | (49) |  |  | (83) |
Settlements | (16) |  |  | (110) |  |  | (48) |
Separation of Carrier and Otis | — |  |  | — |  |  | (439) |
Balance at December 31 | $ | 1,515 |  |  | $ | 1,458 |  |  | $ | 1,225 |
Gross interest expense related to unrecognized tax benefits | $ | 34 |  |  | $ | 39 |  |  | $ | 50 |
Total accrued interest balance at December 31 | 190 |  |  | 165 |  |  | 141 |
The unrecognized tax benefit table includes discontinued operations activity in 2020. As a result of the Separation Transactions and the Distributions in April 2020, we transferred unrecognized tax benefits to Carrier and Otis of $439 million and associated interest of approximately $165 million. Pursuant to the terms of the separation agreements, certain other unrecognized tax benefits retained by the Company are subject to indemnification. The 2020 additions for tax positions of prior years in the table above include amounts related to the Raytheon merger. We conduct business globally and, as a result, Raytheon Technologies or one or more of our subsidiaries files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normal course of business we are subject to examination by taxing authorities throughout the world, including such major jurisdictions as Canada, China, France, Germany, India, Poland, Saudi Arabia, Singapore, Switzerland, the United Kingdom and the United States. With few exceptions, we are no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations for years before 2012. The Examination Division of the IRS is currently auditing Raytheon Technologies tax years 2017 and 2018 and pre-merger Raytheon Company tax years 2017, 2018 and 2019 as well as certain refund claims of Raytheon Company for tax years 2014, 2015 and 2016 filed prior to the Raytheon merger. The examination phase of the audits for each of these tax years is expected to close in 2023. The Examination Division of the IRS is also auditing pre-acquisition Rockwell Collins fiscal tax years 2016, 2017 and 2018. The examination phase of the audit for each of these tax years is expected to close during 2023. It is reasonably possible that a net reduction within the range of $25 million to $375 million of unrecognized tax benefits may occur over the next 12 months as a result of the revaluation of uncertain tax positions arising from developments in examinations, in appeals, or in the courts, or the closure of tax statutes.

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