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TAXES
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
TAXES TAXES
FirstEnergy records income taxes in accordance with the liability method of accounting. Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts recognized for tax purposes. Investment tax credits, which were deferred when utilized, are being amortized over the recovery period of the related property. Deferred income tax liabilities related to temporary tax and accounting basis differences and tax credit carryforward items are recognized at the statutory income tax rates in effect when the liabilities are expected to be paid. Deferred tax assets are recognized based on income tax rates expected to be in effect when they are settled.

FE and its subsidiaries are party to an intercompany income tax allocation agreement that provides for the allocation of consolidated tax liabilities. Net tax benefits attributable to FE, excluding any tax benefits derived from certain interest expense, are generally reallocated to the subsidiaries of FE that have taxable income. That allocation is accounted for as a capital contribution to the company receiving the tax benefit.
On April 9, 2021, West Virginia enacted legislation changing the state’s corporate income tax apportionment rules, including adopting a single sales factor formula and market-based sourcing for sales of services and intangibles, effective for taxable years beginning on or after January 1, 2022. Enactment of this law triggered a remeasurement of state deferred income taxes for entities included in FirstEnergy’s West Virginia combined unitary return, resulting in a net impact of approximately $9 million in additional tax expense in 2021.

For the Years Ended December 31,
INCOME TAXES(1)
202120202019
(In millions)
Currently payable (receivable)-
Federal (2)
$2 $(14)$(16)
State21 21 24 
23 7 8 
Deferred, net-   
Federal(3)
174 171 150 
State(4)
127 (38)60 
301 133 210 
Investment tax credit amortization(4)(14)(5)
Total income taxes$320 $126 $213 
(1)Income Taxes on Income from Continuing Operations.
(2)Excludes $2 million of federal tax benefit and $6 million of federal tax expense associated with discontinued operations for the years ended December 31, 2021 and 2020 respectively.
(3)Excludes $46 million, $66 million and $9 million of federal tax benefits associated with discontinued operations for the years ended December 31, 2021, 2020 and 2019, respectively.
(4)Excludes $1 million and $4 million of state tax expense associated with discontinued operations for the years ended December 31, 2020 and 2019, respectively.

FirstEnergy tax rates are affected by permanent items, such as AFUDC equity and other flow-through items, as well as discrete items that may occur in any given period but are not consistent from period to period. The following tables provide a reconciliation of federal income tax expense (benefit) at the federal statutory rate to the total income taxes (benefits) for the years ended December 31, 2021, 2020 and 2019:
For the Years Ended December 31,
202120202019
(In millions)
Income from Continuing Operations, before income taxes$1,559 $1,129 $1,117 
Federal income tax expense at statutory rate (21%)$327 $237 $235 
Increases (reductions) in taxes resulting from-
State income taxes, net of federal tax benefit122 75 96 
AFUDC equity and other flow-through(29)(38)(36)
Amortization of investment tax credits(4)(14)(5)
Federal tax credits claimed (34)— — 
Nondeductible DPA monetary penalty
52 — — 
Excess deferred tax amortization due to the Tax Act(54)(56)(74)
TMI-2 reversal of tax regulatory liabilities
— (40)— 
Uncertain tax positions(82)(1)(11)
Valuation allowances17 (49)5 
Other, net5 12 3 
Total income taxes$320 $126 $213 
Effective income tax rate20.5 %11.2 %19.1 %
FirstEnergy's effective tax rate on continuing operations for 2021 and 2020 was 20.5% and 11.2%, respectively. The increase in effective tax rate was primarily due to:

•The non-deductibility of the DPA monetary penalty;
•The absence of a $52 million benefit for reduction in valuation allowances in 2020 from the recognition of deferred gains on prior intercompany generation asset transfers triggered by the FES Debtors’ emergence from bankruptcy and deconsolidation from FirstEnergy’s consolidated federal income tax group;
•Lower amortization of investment tax credits due to the absence of a $10 million benefit from accelerated amortization of certain investment credits in 2020;
•The absence of a $40 million benefit related to reversals of certain tax regulatory liabilities resulting from the transfer of TMI-2 in 2020;
•Additional tax expense of $9 million as a result of the West Virginia legislation that changed income tax apportionment rules discussed above;
•Partially offset by a net $81 million increase in uncertain tax position benefits primarily related to reserves on the worthless stock deduction, nondeductible interest under Section 163(j), and certain federal tax credits, discussed below; and
•A $34 million benefit in federal tax credits claimed on FirstEnergy’s federal income tax return in 2021.
Accumulated deferred income taxes as of December 31, 2021 and 2020, are as follows:
As of December 31,
20212020
(In millions)
Property basis differences$5,670 $5,396 
Pension and OPEB(570)(769)
AROs(21)(28)
Regulatory asset/liability322 440 
Deferred compensation(155)(165)
Loss carryforwards and tax credits(2,040)(1,995)
Valuation reserve484 496 
All other(253)(280)
Net deferred income tax liability$3,437 $3,095 

FirstEnergy has recorded as deferred income tax assets the effect of Federal NOLs and tax credits that will more likely than not be realized through future operations and through the reversal of existing temporary differences. As of December 31, 2021, FirstEnergy's loss carryforwards primarily consisted of $6.9 billion ($1.5 billion, net of tax) of Federal NOL carryforwards that will begin to expire in 2031.

The table below summarizes pre-tax NOL carryforwards and their respective anticipated expirations for state and local income tax purposes of approximately $11.9 billion ($544 million, net of tax) for FirstEnergy, of which approximately $2.7 billion ($136 million, net of tax) is expected to be utilized based on current estimates and assumptions. The ultimate utilization of these NOLs may be impacted by statutory limitations on the use of NOLs imposed by state and local tax jurisdictions, changes in statutory tax rates, and changes in business which, among other things, impact both future profitability and the manner in which future taxable income is apportioned to various state and local tax jurisdictions.
Expiration PeriodStateLocal
(In millions)
2022-2026$2,603 $3,783 
2027-20311,390 — 
2032-2036992 — 
2037-2041959 — 
Indefinite2,157 — 
$8,101 $3,783 
The following table summarizes the changes in valuation allowances on federal, state and local DTAs related to disallowed interest and certain employee remuneration, in addition to state and local NOLs discussed above for the years ended December 31, 2021, 2020 and 2019:

(In millions)202120202019
Beginning of year balance$496 $441 $394 
Charged to income(12)55 47 
Charged to other accounts— — — 
Write-offs— — — 
End of year balance$484 $496 $441 

FirstEnergy accounts for uncertainty in income taxes recognized in its financial statements. A recognition threshold and measurement attribute are utilized for financial statement recognition and measurement of tax positions taken or expected to be taken on the tax return. As of December 31, 2021 and 2020, FirstEnergy's total unrecognized income tax benefits were approximately $47 million and $139 million, respectively. The $92 million net decrease in unrecognized income tax benefits is primarily due to:

•Decreases of $68 million for reserves related to the worthless stock deduction (see Note 14, "Discontinued Operations," for further discussion) and $29 million for reserves attributable to nondeductible interest under Section 163(j), both of which were effectively settled with federal taxing authorities;
•Decrease of $7 million to the reserve due to the remeasurement of certain positions for the change in West Virginia deferred taxes resulting from a state law change discussed above and $1 million due to other state tax rate changes;
•Decrease of $2 million due to the lapse in statue in certain state taxing jurisdictions;
•Partially offset by an increase of $15 million for reserves related to certain federal tax credits claimed on FirstEnergy's federal income tax return in 2021.

If ultimately recognized in future years, approximately $39 million of unrecognized income tax benefits would impact the effective tax rate.

As of December 31, 2021, it is reasonably possible that approximately $31 million of unrecognized tax benefits may be resolved during 2022 as a result of settlements with taxing authorities or the statute of limitations expiring, of which $24 million would ultimately affect FirstEnergy's effective tax rate.
The following table summarizes the changes in unrecognized tax positions for the years ended December 31, 2021, 2020 and 2019:
(In millions)
Balance, January 1, 2019$158 
Current year increases22 
Prior year decreases(12)
Decrease for lapse in statute(4)
Balance, December 31, 2019$164 
Current year increases7 
Prior year decreases(28)
Decrease for lapse in statute(2)
        Effectively settled with taxing authorities
(2)
Balance, December 31, 2020$139 
Current year increases15 
Prior years decreases(8)
Effectively settled with taxing authorities
(97)
        Decrease for lapse in statute
(2)
Balance, December 31, 2021$47 

FirstEnergy recognizes interest expense or income and penalties related to uncertain tax positions in income taxes by applying the applicable statutory interest rate to the difference between the tax position recognized and the amount previously taken, or expected to be taken, on the tax return. FirstEnergy includes net interest and penalties in the provision for income taxes.
FirstEnergy's recognition of net interest associated with unrecognized tax benefits in 2021, 2020 and 2019, was not material. For the years ended December 31, 2021 and 2020, the cumulative net interest payable recorded by FirstEnergy was not material.

IRS review of FirstEnergy’s federal income tax returns is complete through the 2020 tax year with no pending adjustments. FirstEnergy’s tax returns for some state jurisdictions are open from tax years 2009 to 2020.

General Taxes

General tax expense for the years ended December 31, 2021, 2020 and 2019, recognized in continuing operations is summarized as follows:
For the Years Ended December 31,
202120202019
(In millions)
KWH excise$189 $183 $191 
State gross receipts190 182 185 
Real and personal property571 541 504 
Social security and unemployment103 112 100 
Other20 28 28 
Total general taxes$1,073 $1,046 $1,008