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Note 7 - Income Taxes
 12 Months Ended
Dec. 31, 2021
Notes to Financial Statements  
Income Tax Disclosure [Text Block]

7. Income Taxes

 

Components of income tax expense were as follows for the years ended December 31:

 

Millions

 

2021

  

2020

  

2019

 

Current tax expense:

            

Federal

 $1,446  $1,026  $1,000 

State

  347   259   254 

Foreign

  8   6   8 

Total current tax expense

  1,801   1,291   1,262 

Deferred and other tax expense/(benefit):

            

Federal

  199   295   417 

State [a]

  (44)  45   128 

Foreign

  (1)  -   21 

Total deferred and other tax expense

  154   340   566 

Total income tax expense

 $1,955  $1,631  $1,828 

 

[a]

In 2021, Nebraska, Oklahoma, Idaho, Louisiana and Arkansas enacted corporate income tax legislation that resulted in a net $32 million reduction of our deferred tax expense. In 2019, Arkansas enacted legislation to reduce their corporate income tax rate for future years resulting in a $21 million reduction of our deferred tax expense.

 

For the years ended December 31, reconciliations between statutory and effective tax rates are as follows:

 

Tax Rate Percentages

 

2021

  

2020

  

2019

 

Federal statutory tax rate

  21.0

%

  21.0

%

  21.0

%

State statutory rates, net of federal benefits

  3.7   3.7   3.7 

Deferred tax adjustments

  (0.6)  (0.1)  (0.1)

Dividends received deduction

  (0.5)  (0.5)  (0.6)

Excess tax benefits from equity compensation plans

  (0.3)  (0.8)  (0.7)

Other

  (0.2)  0.1   0.3 

Effective tax rate

  23.1

%

  23.4

%

  23.6

%

 

Deferred income tax assets/(liabilities) were comprised of the following at December 31, 2021 and 2020:

 

Millions

 

2021

  

2020

 

Deferred income tax liabilities:

        

Property

 $(12,657) $(12,474)

Operating lease assets

  (441)  (397)

Other

  (534)  (444)

Total deferred income tax liabilities

  (13,632)  (13,315)

Deferred income tax assets:

        

Operating lease liabilities

  434   396 

Accrued casualty costs

  157   143 

Accrued wages

  45   40 

Retiree benefits

  39   255 

Stock compensation

  26   26 

Other

  256   208 

Total deferred income tax assets

  957   1,068 

Net deferred income tax liability

 $(12,675) $(12,247)

 

In 2021 and 2020, there were no valuation allowances against deferred tax assets.

 

A reconciliation of changes in unrecognized tax benefits liabilities/(assets) from the beginning to the end of the reporting period is as follows:

 

Millions

 

2021

  

2020

  

2019

 

Unrecognized tax benefits at January 1

 $74  $64  $174 

Decreases for positions taken in prior years

  (24)  (19)  (96)

Refunds from/(payments to) and settlements with taxing authorities

  (12)  -   (11)

Increases for positions taken in current year

  3   18   20 

Increases/(decreases) for interest and penalties

  (3)  5   (5)

Increases for positions taken in prior years

  1   7   44 

Lapse of statutes of limitations

  (1)  (1)  (62)

Unrecognized tax benefits at December 31

 $38  $74  $64 

 

We recognize interest and penalties as part of income tax expense. Total accrued liabilities/(receivables) for interest and penalties were ($1) million and $8 million at December 31, 2021 and 2020, respectively. Total interest and penalties recognized as part of income tax expense/(benefit) were ($5) million for 2021, $5 million for 2020, and ($4) million for 2019.

 

Several state tax authorities are examining our state income tax returns for years 2017 through 2019.

 

We do not expect our unrecognized tax benefits to change significantly in the next 12 months. The portion of our unrecognized tax benefits that relates to permanent changes in tax and interest would reduce our effective tax rate, if recognized. The remaining unrecognized tax benefits relate to tax positions for which only the timing of the benefit is uncertain. The unrecognized tax benefits that would reduce our effective tax rate are $31 million for 2021, $52 million for 2020, and $39 million for 2019.