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Income Taxes | 12 Months Ended
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Dec. 31, 2024
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) | 2024 |  | 2023 |  | 2022
Current |  |  |  |  |
U.S. Federal | $ | 55 |  |  | $ | 26 |  |  | $ | 3 |
State | 82 |  |  | 84 |  |  | 65 |
Foreign | 5 |  |  | (12) |  |  | 3 |
Total — current | 142 |  |  | 98 |  |  | 71 |
Deferred |  |  |  |  |
U.S. Federal | 333 |  |  | 50 |  |  | 258 |
State | (134) |  |  | (61) |  |  | 59 |
Foreign | (18) |  |  | (98) |  |  | 54 |
Total — deferred | 181 |  |  | (109) |  |  | 371 |
Total income tax expense/(benefit) | $ | 323 |  |  | $ | (11) |  |  | $ | 442 |
Effective income tax rate | 22.3 | % |  | 5.2 | % |  | 26.6 | %
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. On September 12, 2024, Treasury and the IRS released proposed regulations that provide guidance on the application of the CAMT. The proposed regulations allow the exclusion of unrealized mark-to-market gains and losses, related to qualified hedge transactions, from adjusted financial statement income. The Company will continue to evaluate the applicable corporation status and the impact of the CAMT based on the proposed guidance. As of December 31, 2024, NRG as an applicable corporation is subject to the CAMT, and has reflected the impact in its current and deferred taxes. There is no impact on the Company’s provision for income taxes from the CAMT as of December 31, 2024. The following represented the domestic and foreign components of income/(loss) before income taxes:
| Year Ended December 31,
(In millions) | 2024 |  | 2023 |  | 2022
U.S. | $ | 1,485 |  |  | $ | 261 |  |  | $ | 1,436 |
Foreign | (37) |  |  | (474) |  |  | 227 |
Total | $ | 1,448 |  |  | $ | (213) |  |  | $ | 1,663 |
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) | 2024 |  | 2023 |  | 2022
Income/(Loss) before income taxes | $ | 1,448 |  |  | $ | (213) |  |  | $ | 1,663 |
Tax at federal statutory tax rate | 304 |  |  | (45) |  |  | 349 |
State taxes | 92 |  |  | (22) |  |  | 69 |
Foreign rate differential | 1 |  |  | (10) |  |  | 7 |
Changes in state valuation allowances | (110) |  |  | 42 |  |  | (3) |
Nondeductible loss on Convertible Senior Notes repurchases | 56 |  |  | — |  |  | — |
Permanent differences | 23 |  |  | 31 |  |  | 17 |
Stock compensation | (19) |  |  | — |  |  | — |
Recognition of uncertain tax benefits | 1 |  |  | 12 |  |  | 8 |
Deferred impact of state tax rate changes | (24) |  |  | 3 |  |  | 14 |
Foreign tax refunds | — |  |  | (17) |  |  | — |
Return to provision adjustments | (1) |  |  | (5) |  |  | — |
Carbon capture tax credits | — |  |  | — |  |  | (19) |
Income tax expense/(benefit) | $ | 323 |  |  | $ | (11) |  |  | $ | 442 |
Effective income tax rate | 22.3 | % |  | 5.2 | % |  | 26.6 | %
For the year ended December 31, 2024, NRG's effective income tax rate was higher than the federal statutory tax rate of 21% primarily due to permanent differences and state tax expense partially offset by tax benefits from the revaluation of state deferred tax assets, and decrease of certain state valuation allowances. 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. 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) | 2024 |  | 2023
Deferred tax assets: |  |  |
U.S. Federal net operating loss carryforwards | $ | 1,477 |  |  | $ | 1,762 |
State net operating loss carryforwards | 341 |  |  | 367 |
Foreign net operating loss carryforwards | 106 |  |  | 110 |
Deferred revenues | 335 |  |  | 347 |
Difference between book and tax basis of property | 322 |  |  | 353 |
Federal and state tax credit carryforwards | 269 |  |  | 317 |
Deferred compensation, accrued vacation and other reserves | 174 |  |  | 141 |
Interest disallowance carryforward per §163(j) of the Tax Act | 77 |  |  | 132 |
Pension and other postretirement benefits | 46 |  |  | 48 |
Allowance for credit losses | 37 |  |  | 35 |
Equity compensation | 30 |  |  | 24 |
Federal benefit on state uncertain tax positions | 13 |  |  | 13 |
Inventory obsolescence | 13 |  |  | 11 |
U.S. capital loss | 1 |  |  | 1 |
Other | 46 |  |  | 33 |
Total deferred tax assets | 3,287 |  |  | 3,694 |
Deferred tax liabilities: |  |  |
Intangibles amortization (excluding goodwill) | 486 |  |  | 726 |
Derivatives | 193 |  |  | 156 |
Capitalized contract costs | 249 |  |  | 131 |
Equity method investments | 88 |  |  | 93 |
Goodwill | 56 |  |  | 40 |
Debt discount amortization | — |  |  | 26 |
Emissions allowances | 16 |  |  | 18 |
Total deferred tax liabilities | 1,088 |  |  | 1,190 |
Total deferred tax assets less deferred tax liabilities | 2,199 |  |  | 2,504 |
Valuation allowance | (144) |  |  | (275) |
Total net deferred tax assets, net of valuation allowance | $ | 2,055 |  |  | $ | 2,229 |
The following table summarizes NRG's net deferred tax position as presented in the consolidated balance sheets:
| As of December 31,
(In millions) | 2024 |  | 2023
Deferred tax asset | $ | 2,067 |  |  | $ | 2,251 |
Deferred tax liability | (12) |  |  | (22) |
Net deferred tax asset | $ | 2,055 |  |  | $ | 2,229 |
The primary drivers for the decrease in the net deferred tax asset from $2.2 billion as of December 31, 2023 to $2.1 billion as of December 31, 2024 is due to utilization of net operating losses, partially offset by the decrease of certain state valuation allowances. Deferred tax assets and valuation allowance Net deferred tax balance — As of December 31, 2024 and 2023, NRG recorded a net deferred tax asset, excluding valuation allowance, of $2.2 billion and $2.5 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, 2024 as discussed below. NOL carryforwards — As of December 31, 2024, the Company had tax-effected cumulative U.S. NOLs consisting of carryforwards for federal and state income tax purposes of $1.5 billion and $341 million, respectively. In addition, NRG has tax-effected cumulative foreign NOL carryforwards of $106 million. The majority of NRG's NOL carryforwards have no expiration date. Valuation allowance — As of December 31, 2024, the Company's tax-effected valuation allowance was $144 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, 2024, NRG recorded a current federal payable of $1 million, a current net state receivable of $1 million and a current net foreign receivable of $8 million. Uncertain tax benefits NRG has identified uncertain tax benefits with after-tax value of $57 million and $73 million as of December 31, 2024 and 2023, for which NRG has recorded a non-current tax liability of $62 million and $76 million, respectively. The Company recognizes interest and penalties related to uncertain tax benefits in income tax expense. The Company recognized $2 million of interest expense for the year ended December 31, 2024, and $1 million for the years ended December 31, 2023 and 2022. As of December 31, 2024 and 2023, NRG had cumulative interest and penalties related to these uncertain tax benefits of $5 million and $3 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 2021. 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) | 2024 |  | 2023
Balance as of January 1 | $ | 73 |  |  | $ | 22 |
Increase due to current year positions | 12 |  |  | 28 |
Increase due to acquired balance from Vivint Smart Home | — |  |  | 23 |
Settlements, payments and statute closure | (28) |  |  | — |
Uncertain tax benefits as of December 31 | $ | 57 |  |  | $ | 73 |

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