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Income Taxes | 12 Months Ended
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Dec. 31, 2023
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes The income tax provision consisted of the following amounts:
| Year Ended December 31,
(In millions, except effective income tax rate) | 2023 |  | 2022 |  | 2021
Current |  |  |  |  |
U.S. Federal | $ | 26 |  |  | $ | 3 |  |  | $ | — |
State | 84 |  |  | 65 |  |  | 48 |
Foreign | (12) |  |  | 3 |  |  | 3 |
Total — current | 98 |  |  | 71 |  |  | 51 |
Deferred |  |  |  |  |
U.S. Federal | 50 |  |  | 258 |  |  | 569 |
State | (61) |  |  | 59 |  |  | 36 |
Foreign | (98) |  |  | 54 |  |  | 16 |
Total — deferred | (109) |  |  | 371 |  |  | 621 |
Total income tax (benefit)/expense | $ | (11) |  |  | $ | 442 |  |  | $ | 672 |
Effective income tax rate | 5.2 | % |  | 26.6 | % |  | 23.5 | %
The IRA enacted on August 16, 2022, introduced new provisions including a 15% corporate alternative minimum tax and a 1% excise tax on net share repurchases with both taxes effective beginning in fiscal year 2023 for NRG. There is no impact on the Company's provision for income taxes from the CAMT for the year ended December 31, 2023. The Company will reevaluate the impact of the corporate alternative minimum tax upon the potential release of guidance by the U.S. Treasury and the IRS regarding the treatment of unrealized gains and losses on derivative instruments. The following represented the domestic and foreign components of income before income taxes:
| Year Ended December 31,
(In millions) | 2023 |  | 2022 |  | 2021
U.S. | $ | 261 |  |  | $ | 1,436 |  |  | $ | 2,759 |
Foreign | (474) |  |  | 227 |  |  | 100 |
Total | $ | (213) |  |  | $ | 1,663 |  |  | $ | 2,859 |
Reconciliations of the U.S. federal statutory tax rate to NRG's effective tax rate were as follows:
| Year Ended December 31,
(In millions, except effective income tax rate) | 2023 |  | 2022 |  | 2021
(Loss)/Income before income taxes | $ | (213) |  |  | $ | 1,663 |  |  | $ | 2,859 |
Tax at federal statutory tax rate | (45) |  |  | 349 |  |  | 600 |
State taxes | (22) |  |  | 69 |  |  | 111 |
Foreign rate differential | (10) |  |  | 7 |  |  | (3) |
Changes in state valuation allowances | 42 |  |  | (3) |  |  | (29) |
Permanent differences | 31 |  |  | 17 |  |  | 8 |
Recognition of uncertain tax benefits | 12 |  |  | 8 |  |  | (10) |
Deferred impact of state tax rate changes | 3 |  |  | 14 |  |  | (10) |
Foreign tax refunds | (17) |  |  | — |  |  | — |
Return to provision adjustments | (5) |  |  | — |  |  | 5 |
Carbon capture tax credits | — |  |  | (19) |  |  | — |
Income tax (benefit)/expense | $ | (11) |  |  | $ | 442 |  |  | $ | 672 |
Effective income tax rate | 5.2 | % |  | 26.6 | % |  | 23.5 | %
For the year ended December 31, 2023, NRG's effective income tax rate was lower than the federal statutory tax rate of 21%, primarily due to permanent differences and changes in state valuation allowances. For the year ended December 31, 2022, NRG's effective income tax rate was higher than the federal statutory tax rate of 21% primarily due to state tax expense partially offset by the recognition of carbon capture tax credits. For the year ended December 31, 2021, NRG's effective income tax rate was higher than the federal statutory tax rate of 21% primarily due to state tax expense partially offset by tax benefits from the revaluation of state deferred tax assets, valuation allowance, and settlements of uncertain tax positions. The temporary differences, which gave rise to the Company's deferred tax assets and liabilities consisted of the following:
| As of December 31,
(In millions) | 2023 |  | 2022
Deferred tax assets: |  |  |
U.S. Federal net operating loss carryforwards | $ | 1,762 |  |  | $ | 1,717 |
State net operating loss carryforwards | 367 |  |  | 315 |
Foreign net operating loss carryforwards | 110 |  |  | 104 |
Deferred revenues | 347 |  |  | — |
Difference between book and tax basis of property | 353 |  |  | 399 |
Federal and state tax credit carryforwards | 317 |  |  | 393 |
Deferred compensation, accrued vacation and other reserves | 141 |  |  | 93 |
Interest disallowance carryforward per §163(j) of the Tax Act | 132 |  |  | 65 |
Pension and other postretirement benefits | 48 |  |  | 62 |
Allowance for credit losses | 35 |  |  | 33 |
Equity compensation | 24 |  |  | 8 |
Federal benefit on state uncertain tax positions | 13 |  |  | 5 |
Inventory obsolescence | 11 |  |  | 10 |
U.S. capital loss | 1 |  |  | 15 |
Other | 33 |  |  | 22 |
Total deferred tax assets | 3,694 |  |  | 3,241 |
Deferred tax liabilities: |  |  |
Intangibles amortization (excluding goodwill) | 726 |  |  | 269 |
Derivatives | 156 |  |  | 874 |
Capitalized contract costs | 131 |  |  | — |
Equity method investments | 93 |  |  | 82 |
Goodwill | 40 |  |  | 26 |
Debt discount amortization | 26 |  |  | — |
Emissions allowances | 18 |  |  | 19 |
Total deferred tax liabilities | 1,190 |  |  | 1,270 |
Total deferred tax assets less deferred tax liabilities | 2,504 |  |  | 1,971 |
Valuation allowance | (275) |  |  | (224) |
Total net deferred tax assets, net of valuation allowance | $ | 2,229 |  |  | $ | 1,747 |
The following table summarizes NRG's net deferred tax position as presented in the consolidated balance sheets:
| As of December 31,
(In millions) | 2023 |  | 2022
Deferred tax asset | $ | 2,251 |  |  | $ | 1,881 |
Deferred tax liability | (22) |  |  | (134) |
Net deferred tax asset | $ | 2,229 |  |  | $ | 1,747 |
The primary drivers for the increase in the net deferred tax asset from $1.7 billion as of December 31, 2022 to $2.2 billion as of December 31, 2023 is due to unrealized mark-to-market book losses and deferred revenues, partially offset by capitalized contract costs and a step-up in basis of book intangibles associated with the acquisition of Vivint Smart Home. Deferred tax assets and valuation allowance Net deferred tax balance — As of December 31, 2023 and 2022, NRG recorded a net deferred tax asset, excluding valuation allowance, of $2.5 billion and $2.0 billion, respectively. The Company believes certain state net operating losses may not be realizable under the more-likely-than-not measurement and as such, a valuation allowance was recorded as of December 31, 2023 as discussed below. NOL carryforwards — As of December 31, 2023, the Company had tax-effected cumulative U.S. NOLs consisting of carryforwards for federal and state income tax purposes of $1.8 billion and $367 million, respectively. In addition, NRG has tax-effected cumulative foreign NOL carryforwards of $110 million. The majority of NRG's NOL carryforwards have no expiration date. Valuation allowance — As of December 31, 2023, the Company's tax-effected valuation allowance was $275 million, consisting of state NOL carryforwards and foreign NOL carryforwards. The valuation allowance was recorded based on the assessment of cumulative and forecasted pre-tax book earnings and the future reversal of existing taxable temporary differences. Taxes Receivable and Payable As of December 31, 2023, NRG recorded a current federal payable of $20 million, a current net state payable of $3 million and a current net foreign receivable of $7 million. Uncertain tax benefits NRG has identified uncertain tax benefits with after-tax value of $73 million and $22 million as of December 31, 2023 and 2022, for which NRG has recorded a non-current tax liability of $76 million and $24 million, respectively. The Company recognizes interest and penalties related to uncertain tax benefits in income tax expense. The Company recognized $1 million of interest expense for the year ended December 31, 2023, $1 million for the year ended 2022 and an immaterial amount for the year ended 2021. As of December 31, 2023 and 2022, NRG had cumulative interest and penalties related to these uncertain tax benefits of $3 million and $2 million, respectively. Tax jurisdictions — NRG is subject to examination by taxing authorities for income tax returns filed in the U.S. federal jurisdiction and various state and foreign jurisdictions including operations located in Australia and Canada. The Company is no longer subject to U.S. federal income tax examinations for years prior to 2020. With few exceptions, state and Canadian income tax examinations are no longer open for years before 2015. The following table summarizes uncertain tax benefits activity:
| As of December 31,
(In millions) | 2023 |  | 2022
Balance as of January 1 | $ | 22 |  |  | $ | 13 |
Increase due to current year positions | 28 |  |  | 9 |
Increase due to acquired balance from Vivint Smart Home | 23 |  |  | — |
Uncertain tax benefits as of December 31 | $ | 73 |  |  | $ | 22 |

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