Income Tax Expense

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions, as applicable. Income from continuing operations before income taxes included income from domestic operations of $2,222, $2,644 and $1,753 for the years ended December 31, 2020, 2019 and 2018, and income (losses) from foreign operations of $(102), $(84) and $0 for the years ended December 31, 2020, 2019 and 2018.

Income Tax Expense


	For the years ended December 31,
	2020		2019		2018
Income tax expense (benefit)
Current - U.S. federal	$	410	$	8	$	(18)
Foreign	—		—		—
Total current	410		8		(18)
Deferred - U.S. federal	(20)		476		286
Foreign	(7)		(9)		—
Total deferred	(27)		467		286
Total income tax expense	$	383	$	475	$	268

Income Tax Rate Reconciliation


	For the years ended December 31,
	2020		2019		2018
Tax provision at U.S. Federal statutory rate	$	445	$	538	$	368
Tax-exempt interest	(46)		(56)		(66)
Increase in deferred tax valuation allowance	9		2		—




Sale of business	(8)		—		—

Carryback benefit	(5)		—		—
Tax law change	(6)		—		(39)
Other	(6)		(9)		5
Provision for income taxes	$	383	$	475	$	268

Deferred Taxes

Deferred tax assets and liabilities on the consolidated balance sheets represent the tax consequences of differences between the financial reporting and tax basis of assets and liabilities.

The Company predominantly pays non-income state taxes as a percentage of premiums written which are accounted for as policy acquisition costs. State income taxes were $3, $5 and $4

for the years ended December 31, 2020, 2019 and 2018, respectively, and are included in other expenses. The Hartford has not recorded state deferred taxes, including net deferred tax assets from state operating loss carryforwards because the Company does not expect to earn state taxable income to utilize such state tax benefits.

Deferred Tax Assets (Liabilities)


	As of December 31,
	2020		2019
Deferred tax assets
Loss reserves and tax discount	$	312	$	214


Unearned premium reserve and other underwriting related reserves	384		385
Investment-related items	125		130

Employee benefits	282		287


Net operating loss carryover	11		84


Other	34		27
Total deferred tax assets	1,148		1,127
Valuation allowance	(4)		(4)
Deferred tax assets, net of valuation allowance	1,144		1,123
Deferred tax liabilities
Deferred acquisition costs	(120)		(143)
Net unrealized gains on investments	(758)		(458)
Other depreciable and amortizable assets	(220)		(223)

Total deferred tax liabilities	(1,098)		(824)
Net deferred tax asset	$	46	$	299

For the year ended December 31, 2020, the Company has utilized all US net operating loss carryforwards as a reduction of 2020 current tax liability. The Company has foreign net operating losses of $11 for which a valuation allowance of $4 has been established. While the foreign net operating losses ("NOLs") do not expire, this assessment reflects uncertainty in the Company's ability to generate sufficient taxable income in the near term in those specific jurisdictions.

Management has assessed the need for a valuation allowance against its deferred tax assets based on tax character and jurisdiction. In making the assessment, management considered future taxable temporary difference reversals, future taxable income exclusive of reversing temporary differences and carryovers, taxable income in open carry back years and other tax planning strategies. From time to time, tax planning strategies could include holding a portion of fixed income securities with

market value losses until recovery, altering the level of tax exempt securities held, making investments which have specific tax characteristics, and business considerations such as asset-liability matching. Management views such tax planning strategies as prudent and feasible and would implement them, if necessary, to realize the deferred tax assets.

Uncertain Tax Positions

Rollforward of Unrecognized Tax Benefits


	For the years ended December 31,
	2020		2019		2018
Balance, beginning of period	$	14	$	14	$	9
Gross increases - tax positions in prior period	—		—		5
Gross decreases - tax positions in prior period	—		—		—

Gross increases - tax positions in current period	1		—		—


Balance, end of period	$	15	$	14	$	14

The entire amount of unrecognized tax benefits, if recognized, would affect the effective tax rate in the period of the release.

In addition, for the year ended December 31, 2018 the Company recorded a receivable of $5 related to a tax indemnification agreement associated with the life and annuity business sold in May 2018. The receivable is separate from the tax liability and is classified in other assets on the balance sheet.

Other Tax Matters

On March 27, 2020, as part of the business stimulus package in response to the COVID-19 pandemic, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security ("CARES") Act. The CARES Act established new tax provisions including, but not limited to: (1) five-year carryback of net operating losses generated in 2018, 2019 and 2020; (2) accelerated refund of alternative minimum tax ("AMT") credit carryforwards; and (3) retroactive changes to allow accelerated depreciation for certain depreciable property.

The legislation results in a benefit of $6 related to the ability to carryback non-insurance losses to recover taxes paid in prior years as described below. The changes to AMT recovery periods do not impact the Company due to the fact that the Company has received a refund or reduction of regular tax payable for all the remaining AMT credits in 2020.

For the year ended December 31, 2020 the Company recorded a tax benefit of $11 related to the expected carryback of losses from the Navigators Group 2019 pre-acquisition tax returns to recover taxes paid in prior years at the previous statutory tax rate of 35%, of which $6 was by virtue of the non-insurance carryback provision of the CARES Act.

Included in 2018 is a benefit of $39, primarily due to the elimination of the sequestration fee on alternative minimum tax credits included in the Tax Cuts and Jobs Act ("TCJA").

For the year ended December 31, 2020 the Company recorded a tax benefit of $8 related to the excess tax over GAAP basis on the sale of the continental Europe operations. Refer to Note 22 - Business Dispositions and Discontinued Operations.

The federal audits for the Company have been completed through 2013, and the Company is not currently under federal examination for any open years. The statute of limitations is closed through the 2016 tax year with the exception of NOL carryforwards utilized in open tax years. Management believes that adequate provision has been made in the Company's Consolidated Financial Statements for any potential adjustments that may result from tax examinations and other tax-related matters for all open tax years.

The Company classifies interest and penalties (if applicable) as income tax expense in the Consolidated Financial Statements. The Company recognized net interest income of $1, $1 and $0 for the years ended December 31, 2020, 2019 and 2018. The Company has no interest payable as of December 31, 2020, 2019 and 2018. The Company does not believe it would be subject to any penalties in any open tax years and, therefore, has not recorded any accrual for penalties.