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Income Taxes | 12 Months Ended
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Dec. 31, 2020
Income Tax Disclosure [Abstract] |
Income Taxes |
14. | Income Taxes
Income before income taxes consisted of the following:
| Year ended December 31,
(In thousands) | 2020 |  | 2019 |  | 2018
United States | $ | (163,014) |  |  | $ | 178,235 |  |  | $ | 194,770 |
Foreign | (138,067) |  |  | 38,281 |  |  | 43,849 |
Total | $ | (301,081) |  |  | $ | 216,516 |  |  | $ | 238,619 |
Income taxes from continuing operations consisted of the following for the years ended December 31:
(In thousands) | United States |  | State and Local |  | Foreign |  | Total
2020 |  |  |  |  |  |  |
Current | $ | (7,546) |  |  | $ | 2,509 |  |  | $ | 13,782 |  |  | $ | 8,745 |
Deferred | $ | (22,568) |  |  | $ | (4,943) |  |  | $ | (1,831) |  |  | $ | (29,342) |
Income taxes |  |  |  |  |  |  | $ | (20,597) |
2019 |  |  |  |  |  |  |
Current | $ | 20,748 |  |  | $ | 4,486 |  |  | $ | 16,322 |  |  | $ | 41,556 |
Deferred | $ | 19,946 |  |  | $ | 3,831 |  |  | $ | (4,110) |  |  | $ | 19,667 |
Income taxes |  |  |  |  |  |  | $ | 61,223 |
2018 |  |  |  |  |  |  |
Current | $ | 16,027 |  |  | $ | 3,566 |  |  | $ | 17,916 |  |  | $ | 37,509 |
Deferred | $ | 29,520 |  |  | $ | 8,016 |  |  | $ | (6,202) |  |  | $ | 31,334 |
Income taxes |  |  |  |  |  |  | $ | 68,843 |
Undistributed earnings of certain foreign subsidiaries of the Company amounted to $58.5 million and $77.4 million at December 31, 2020 and 2019, respectively. The Company had historically asserted that the undistributed earnings of foreign subsidiaries were considered indefinitely reinvested outside the United States. The Company reevaluated its historic indefinite reinvestment assertion and determined that any historical undistributed earnings as well as the future earnings for WEX Australia are no longer considered to be indefinitely reinvested. The Company continues to maintain its indefinite reinvestment assertion for its remaining foreign subsidiaries. The deferred tax liability related to the foreign and state tax costs associated with this change in assertion was immaterial. Upon distribution of the foreign subsidiaries earnings in which the Company continues to assert indefinite reinvestment, the Company would be subject to withholding taxes payable to foreign countries, where applicable, but would generally have no further federal income tax liability. The reconciliation between the income tax computed by applying the U.S. federal statutory rate and the reported effective tax rate on income from continuing operations is as follows:
| Year ended December 31,
(In thousands except for tax rates) | 2020 |  | 2019 |  | 2018
Federal statutory rate | 21.0 | % |  | 21.0 | % |  | 21.0 | %
State income taxes (net of federal income tax benefit) | 1.6 |  |  | 1.4 |  |  | 2.2 |
Foreign income tax rate differential | 3.3 |  |  | 0.8 |  |  | 1.1 |
Revaluation of deferred tax assets for foreign and state tax rate changes, net | (1.9) |  |  | (1.0) |  |  | (1.3) |
Loss on sale of subsidiary | (2.3) |  |  | — |  |  | — |
Legal settlement | (5.1) |  |  | — |  |  | — |
Purchase accounting adjustments | 4.3 |  |  | — |  |  | — |
Research and development credit | — |  |  | (0.5) |  |  | (0.2) |
Tax reserves | (0.1) |  |  | 0.8 |  |  | 2.0 |
Withholding taxes | (0.1) |  |  | 0.7 |  |  | 0.2 |
2017 Tax Act | — |  |  | — |  |  | (0.2) |
Change in valuation allowance | (13.5) |  |  | 3.1 |  |  | 4.5 |
Nondeductible expenses | (1.6) |  |  | 2.3 |  |  | 1.4 |
Incremental tax benefit from share-based compensation awards | 0.2 |  |  | (2.0) |  |  | (1.7) |
GILTI | — |  |  | 0.5 |  |  | 0.8 |
Other | 1.0 |  |  | 1.2 |  |  | (0.9) |
Effective tax rate | 6.8 | % |  | 28.3 | % |  | 28.9 | %
We recorded an income tax benefit for 2020 as compared to an income tax provision for 2019. The Company's effective tax rate for the year ended December 31, 2020 was impacted by no income tax benefit being recorded for i) operating losses generated by WEX Latin America during the current year through the date of sale, ii) the loss on sale of WEX Latin America, and iii) the legal settlement. These losses were included as part of the current year loss and have been determined to be either non-deductible for income tax purposes or required a valuation allowance. A portion of the legal settlement resulted in a foreign capital loss, which the Company concluded was not more likely than not to be realized and accordingly recorded a full valuation allowance against it. The remaining portion of the legal settlement was determined to be non-deductible for income tax purposes. Purchase accounting adjustments relate to the additional tax basis and attributes for Discovery Benefits and Noventis recognized in the income tax (benefit) provision as the respective measurement periods had ended. The lower effective tax rate for the year ended December 31, 2019 relative to 2018 was primarily due to the jurisdictional earnings mix. The tax effects of temporary differences in the recognition of income and expense for tax and financial reporting purposes that give rise to significant portions of the deferred tax assets and liabilities are presented below:
| December 31,
(In thousands) | 2020 |  | 2019
Deferred tax assets related to: |  |  |
Reserve for credit losses | $ | 14,484 |  |  | $ | 11,831 |
Tax credit carryforwards | 1,371 |  |  | 2,570 |
Stock-based compensation, net | 21,376 |  |  | 16,070 |
Net operating loss carry forwards | 45,612 |  |  | 49,464 |
Capital loss carry forwards | 28,211 |  |  | — |
Accruals | 29,477 |  |  | 18,934 |
Operating lease liabilities | 24,142 |  |  | 18,892 |
Other | 9,013 |  |  | 4,283 |
Total | $ | 173,686 |  |  | $ | 122,044 |
Deferred tax liabilities related to: |  |  |
Deferred financing costs | $ | (13,590) |  |  | $ | (1,090) |
Property, equipment and capitalized software | (34,232) |  |  | (35,273) |
Intangibles | (247,361) |  |  | (243,229) |
Operating lease assets | (20,425) |  |  | (15,602) |
Other liabilities | (107) |  |  | (86) |
Total | $ | (315,715) |  |  | $ | (295,280) |
Valuation allowance | (60,569) |  |  | (32,671) |
Deferred income taxes, net | $ | (202,598) |  |  | $ | (205,907) |
Net deferred tax (liabilities) assets by jurisdiction are as follows:
| December 31,
(In thousands) | 2020 |  | 2019
United States | $ | (201,739) |  |  | $ | (217,927) |
Australia | 4,009 |  |  | (795) |
Europe | 14,839 |  |  | 5,645 |
New Zealand | 123 |  |  | 237 |
Singapore | (19,863) |  |  | — |
Mexico | 6 |  |  | — |
Brazil | — |  |  | 6,820 |
Canada | 27 |  |  | 113 |
Deferred income taxes, net | $ | (202,598) |  |  | $ | (205,907) |
The Company had approximately $511.5 million of post apportionment state, $19.8 million of federal and $76.4 million of foreign net operating loss carryforwards at December 31, 2020 and approximately $608.7 million of post apportionment state, $31.3 million of federal and $58.6 million of foreign net operating loss carryforwards at December 31, 2019. The U.S. losses expire at various times through 2040. Foreign losses in Australia and the United Kingdom have indefinite carryforward periods. At December 31, 2020, the Company’s valuation allowance primarily pertains to net deferred tax assets for certain states and foreign capital losses arising from a portion of the legal settlement. In each case, the Company has determined it is not more likely than not that the benefits will be utilized. During 2020 and 2019, the Company recorded tax expense of $40.6 million and $6.6 million, respectively, for net increases to the valuation allowance. The increase in the valuation allowance in 2020 was primarily related to the foreign capital losses arising from a portion of the legal settlement and operating losses generated from WEX Latin America during the current year through the date of sale. WEX Latin America’s deferred tax assets and related valuation allowance are not reflected in the tables above, since the Company sold WEX Latin America on September 30, 2020. The majority of the increase in valuation allowance in 2019 was related to state net operating losses driven from the Company’s parent company separate state filings. At December 31, 2020, the Company had $4.1 million of unrecognized tax benefits, net of federal income tax benefit, of which $3.6 million would decrease our effective tax rate if fully recognized. The Company does not expect any changes to the unrecognized tax benefits within the next twelve months as a result of settlements of certain examinations or expiration of statutes of limitations. The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense. The total amounts of interest and penalties were not material for the years ended December 31, 2020, 2019 and 2018, and as of December 31, 2020 and 2019, the Company had no material amounts accrued for interest and penalties related to unrecognized tax benefits. A reconciliation of the beginning and ending amount of gross unrecognized tax benefits excluding interest and penalties is as follows:
| Year ended December 31,
(In thousands) | 2020 |  | 2019 |  | 2018
Beginning balance | $ | 10,320 |  |  | $ | 8,996 |  |  | $ | 5,898 |
Increases related to prior year tax positions | — |  |  | 1,727 |  |  | 4,831 |
Increases related to current year tax positions | — |  |  | — |  |  | — |
Decreases related to prior year tax positions | (826) |  |  | (39) |  |  | — |
Settlements | (5,361) |  |  | (364) |  |  | (1,733) |
Ending balance | $ | 4,133 |  |  | $ | 10,320 |  |  | $ | 8,996 |
The Company’s primary tax jurisdictions are the United States, Australia and the United Kingdom. The Company or one of its subsidiaries files income tax returns in the United States federal jurisdiction and various state and foreign jurisdictions, where required. In the normal course of business, the Company is no longer subject to income tax examination after the Internal Revenue Service statute of limitations of three years. The Internal Revenue Service is currently examining the Company’s U.S. federal income tax returns for 2013 through 2015. The Company concluded the appeals process with the Internal Revenue Service in connection with the 2010 through 2012 audits with no additional tax impact to the Company. At December 31, 2020, U.S. state tax returns were no longer subject to tax examination for years prior to 2014. The tax years remaining open for income tax audits in the United Kingdom are 2019 and 2020, while the tax years open for audit in Australia are 2016 through 2020.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 + Details
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