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Income Taxes
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
Federated Hermes files a consolidated federal income tax return. Financial statement tax expense is determined under the liability method.
Income Tax Provision consisted of the following expense/(benefit) components for the years ended December 31: 
(in thousands)202120202019
Current:
Federal$73,351 $76,936 $67,745 
State8,628 11,759 10,158 
Foreign2,970 3,171 2,791 
Total Current84,949 91,866 80,694 
Deferred:
Federal3,457 9,991 6,395 
State1,421 2,365 1,427 
Foreign14,155 5,813 (370)
Total Deferred19,033 18,169 7,452 
Total$103,982 $110,035 $88,146 
The reconciliation between the statutory income tax rate and the effective tax rate consisted of the following for the years ended December 31: 
202120202019
Expected Federal Statutory Income Tax Rate21.0 %21.0 %21.0 %
Increase/(Decrease):
State and Local Income Taxes, net of Federal Benefit1.9 2.4 2.4 
Foreign Income Taxes3.6 0.8 (0.1)
Non-Deductible Executive Compensation1.2 0.8 0.9 
Other(0.1)(0.3)(0.1)
Effective Tax Rate 27.6 %24.7 %24.1 %
The effective tax rate for 2021 increased to 27.6% as compared to the effective tax rate for 2020 of 24.7% primarily due to an increase in foreign deferred tax expense in connection with the revaluation of net foreign deferred tax liabilities resulting from recent UK legislation that increases the UK corporate income tax rate from 19% to 25% effective April 1, 2023.
The tax effects of temporary differences that gave rise to significant portions of deferred tax assets and liabilities consisted of the following at December 31:
(in thousands)20212020
Deferred Tax Assets
Tax Net Operating Loss Carryforwards$71,492 $74,274 
Lease liability28,160 30,931 
Compensation related21,457 18,033 
Other1,125 871 
Total Deferred Tax Assets122,234 124,109 
Valuation Allowance(59,250)(61,089)
Total Deferred Tax Asset, net of Valuation Allowance$62,984 $63,020 
Deferred Tax Liabilities
Intangible Assets$232,702 $211,127 
Right-of-use asset25,854 28,981 
Property and equipment3,783 5,121 
Other5,851 5,728 
Total Gross Deferred Tax Liability$268,190 $250,957 
Net Deferred Tax Liability$205,206 $187,937 
Long-Term Deferred Tax Liability, net at December 31, 2021 increased $17.3 million from December 31, 2020 primarily due to recent UK legislation that increases the UK corporate income tax rate from 19% to 25% effective April 1, 2023.
At December 31, 2021, Federated Hermes had deferred tax assets related to state and foreign tax net operating loss carryforwards in certain taxing jurisdictions in the aggregate of $71.5 million. The state net operating losses will expire through 2041, while most foreign net operating losses do not expire. A valuation allowance has been recognized for $49.5 million (or 99%) of the deferred tax asset for state tax net operating losses, and for $9.8 million (or 45%) of the deferred tax asset for foreign tax net operating losses. The valuation allowances were recorded due to management's belief that it is more likely than not that Federated Hermes will not realize the full benefit of these net operating losses. For the deferred tax asset, net of valuation allowance related to foreign net operating losses, management believes that it is more likely than not that it will realize the benefit of these net operating losses based on projections of future taxable income for the entities to which these relate.
At December 31, 2020, Federated Hermes had deferred tax assets related to state and foreign tax net operating loss carryforwards in certain taxing jurisdictions in the aggregate of $74.3 million. The state net operating losses will expire through 2040, while most foreign net operating losses do not expire. A valuation allowance has been recognized for $51.6 million (or 100%) of the deferred tax asset for state tax net operating losses, and for $9.5 million (or 42%) of the deferred tax asset for foreign tax net operating losses. The valuation allowances were recorded due to management's belief that it is more likely than not that Federated Hermes will not realize the full benefit of these net operating losses. For the deferred tax asset, net of
valuation allowance related to foreign net operating losses, management believes that it is more likely than not that it will realize the benefit of these net operating losses based on projections of future taxable income for the entities to which these relate.
Federated Hermes' remaining deferred tax assets as of December 31, 2021 and 2020 primarily related to lease liabilities reported pursuant to ASC 842 and compensation-related expenses that have been recognized for book purposes but are not yet deductible for tax purposes. Management believes that it is more likely than not that Federated Hermes will receive the full benefit of these deferred tax assets due to the expectation that Federated Hermes will generate taxable income well in excess of these amounts in the years they become deductible.
Federated Hermes and its subsidiaries file annual income tax returns in the U.S. federal jurisdiction, various U.S. state and local jurisdictions, and in certain foreign jurisdictions. Based upon its review of these filings, there were no material unrecognized tax benefits as of December 31, 2021 or 2020. Therefore, there were no material changes during 2021, and no reasonable possibility of a significant increase or decrease in unrecognized tax benefits within the next twelve months. Federated Hermes' U.S. federal tax returns for tax years 2018 to 2021 remain open to examination, while filings in its major state tax jurisdictions from tax years 2017 to 2021 generally remain open to examination.