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INCOME TAXES | 12 Months Ended
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Dec. 31, 2024
Income Tax Disclosure [Abstract] |
INCOME TAXES | INCOME TAXES Deferred income taxes Deferred income taxes reflect the impact of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and such amounts for tax purposes. The Company has a net deferred tax liability, primarily due to differences in depreciation rates for federal income tax purposes and for financial reporting purposes. Deferred tax (assets) and liabilities comprise the following:
(in millions) | 2024 |  | 2023
Excess of tax over book depreciation | $ | 2,017 |  |  | $ | 1,605 |
Intangibles - net | 208 |  |  | 16 |
Operating lease assets | 320 |  |  | 292 |
Other - net | 79 |  |  | 3 |
Deferred tax liabilities | 2,624 |  |  | 1,916 |
Loyalty program | (577) |  |  | (455) |
Inventory obsolescence | (29) |  |  | (23) |
Employee benefits | (240) |  |  | (159) |
Net operating losses | (320) |  |  | (166) |
Operating lease liabilities | (345) |  |  | (329) |
Leasehold maintenance | (31) |  |  | (28) |
Other - net | (188) |  |  | (77) |
Deferred tax assets | (1,730) |  |  | (1,237) |
Valuation allowance | 40 |  |  | 16 |
Net deferred tax liabilities | $ | 934 |  |  | $ | 695 |
At December 31, 2024, the Company has paid taxes of $24 million and expects to pay additional tax of $5 million for 2024. The Company is also awaiting payment of a $4 million federal tax refund receivable as a result of carrying back capital losses and credits to previous tax years. The Company also has gross state and local NOLs of approximately $2.5 billion that expire beginning in 2025 and continuing through 2043. Current federal NOLs in the amount of $1.2 billion will be carried forward and have an indefinite life. Valuation allowances are provided to reduce the related deferred income tax assets to an amount which will, more likely than not, be realized. The Company has determined it is more likely than not that a portion of the federal capital loss carryforward and state NOL carryforward will not be realized and, therefore has provided a valuation allowance of $40 million for that portion as of December 31, 2024. The Company has likewise concluded it is more likely than not that all of its federal and the remaining state deferred income tax assets will be realized and thus no additional valuation allowance has been recorded. The Company reassesses the need for a valuation allowance each reporting period. As of the acquisition closing date, the Company recorded a net deferred tax liability of $90 million on the opening balance sheet related to the Hawaiian Airlines acquisition. Components of income tax expense (benefit) The components of income tax expense (benefit) are as follows:
(in millions) | 2024 |  | 2023 |  | 2022
Current income tax (benefit) expense: |  |  |  |  |
Federal | $ | 8 |  |  | $ | (3) |  |  | $ | (11) |
State | 13 |  |  | (4) |  |  | (3) |
Total current income tax (benefit) expense | 21 |  |  | (7) |  |  | (14) |
Deferred income tax expense: |  |  |  |  |
Federal | 120 |  |  | 82 |  |  | 32 |
State | 9 |  |  | 13 |  |  | 3 |
Total deferred income tax expense | 129 |  |  | 95 |  |  | 35 |
Income tax expense | $ | 150 |  |  | $ | 88 |  |  | $ | 21 |
Income tax rate reconciliation Income tax expense reconciles to the amount computed by applying the 2024 U.S. federal rate of 21% to income before income tax and for deferred taxes as follows:
(in millions) | 2024 |  | 2023 |  | 2022
Income before income tax | $ | 545 |  |  | $ | 323 |  |  | $ | 79 |
Expected tax expense | 114 |  |  | 68 |  |  | 17 |
Nondeductible expenses | 24 |  |  | 14 |  |  | 11 |
State income tax expense | 24 |  |  | 17 |  |  | 5 |
State income sourcing | (5) |  |  | (5) |  |  | (2) |
Valuation allowance | 1 |  |  | (1) |  |  | (4) |
Tax credits | (7) |  |  | (3) |  |  | (5) |
Uncertain tax positions | 5 |  |  | (5) |  |  | (1) |
Other - net | (6) |  |  | 3 |  |  | — |
Actual tax expense | $ | 150 |  |  | $ | 88 |  |  | $ | 21 |
Effective tax rate(a) | 27.5 | % |  | 27.1 | % |  | 26.2 | %
(a) Figures in the table above are rounded to the nearest million. As a result, a manual recalculation of the effective tax rate using these rounded figures may not agree directly to the Company's actual effective tax rate shown in the table. Uncertain tax positions The Company has identified its federal tax return and its state tax returns in Alaska, California, Hawai'i, and Oregon as “major” tax jurisdictions. A summary of the Company's jurisdictions and the periods that are subject to examination are as follows:
Jurisdiction | Period
Federal | 2021 to 2023
Alaska | 2019 to 2023
California | 2010 to 2023
Hawai'i | 2020 to 2023
Oregon | 2015 to 2023
Certain tax years are open to the extent of net operating loss carryforwards. Changes in the liability for gross unrecognized tax benefits during 2024, 2023 and 2022 are as follows:
(in millions) | 2024 |  | 2023 |  | 2022
Balance at January 1 | $ | 25 |  |  | $ | 21 |  |  | $ | 41 |
Additions related to prior years | 1 |  |  | — |  |  | — |
Releases related to prior years | — |  |  | — |  |  | (1) |
Additions related to current year activity | 5 |  |  | 9 |  |  | 1 |
Releases due to settlements | — |  |  | (3) |  |  | (20) |
Additions from acquisition | 5 |  |  | — |  |  | — |
Releases due to lapse of statute of limitations | — |  |  | (2) |  |  | — |
Balance at December 31 | $ | 36 |  |  | $ | 25 |  |  | $ | 21 |
As of December 31, 2024, the Company had $36 million of accrued tax contingencies, of which $26 million, if fully recognized, would decrease the effective tax rate. As of December 31, 2024, 2023 and 2022, the Company has accrued interest and penalties, net of federal income tax benefit, of $4 million, $2 million, and $3 million. In 2024 and 2023, the Company recognized an immaterial benefit for interest and penalties, net of federal income tax benefit. In 2022, the Company recognized expense of $5 million for interest and penalties, net of federal income tax benefit. At December 31, 2024, the Company has unrecognized tax benefits recorded as a liability including $5 million related to the acquisition of Hawaiian Airlines. These uncertain tax positions could change because of the Company's ongoing audits, settlement of issues, new audits, and status of other taxpayer court cases. The Company cannot predict the timing of these actions.

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