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Income Taxes | 12 Months Ended
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Dec. 31, 2018
Income Tax Disclosure [Abstract] |
INCOME TAXES | INCOME TAXES Provision for Income Taxes The provision for income taxes consists of the following:
| Year Ended December 31,
(in millions) | 2018 | 2017 | 2016
Current: |  |  |
Federal | $ | 41 |  | $ | 46 |  | $ | 1 |
State | 7 |  | 1 |  | — |
Total Current | 48 |  | 47 |  | 1 |
Deferred: |  |  |
Federal | (3 | ) | 12 |  | 38 |
State | 4 |  | 3 |  | 5 |
Revaluation due to legislative changes | — |  | (40 | ) | (1 | )
Total Deferred | 1 |  | (25 | ) | 42 |
Total | $ | 49 |  | $ | 22 |  | $ | 43 |
The U.S. federal statutory income tax rate reconciled to our effective tax rate is as follows:
| Year Ended December 31,
| 2018 | 2017 | 2016
(in millions, except percent) | Pre-Tax Income | Tax Expense/(Benefit) | Percent of Pre-Tax Income (Loss) | Pre-Tax Income | Tax Expense/(Benefit) | Percent of Pre-Tax Income (Loss) | Pre-Tax Income | Tax Expense/(Benefit) | Percent of Pre-Tax Income (Loss)
| $ | 241 |  |  |  | $ | 200 |  |  |  | $ | 104 |  |  |
U.S. federal statutory tax rate |  | $ | 51 |  | 21 | % |  | $ | 70 |  | 35 | % |  | $ | 37 |  | 35 | %
State income taxes, net of federal benefit |  | 18 |  | 8 |  |  | 10 |  | 5 |  |  | 4 |  | 4 |
Tax rate change |  | — |  | — |  |  | (40 | ) | (20 | ) |  | (1 | ) | (1 | )
Nondeductible meals, entertainment and penalties |  | 1 |  | 1 |  |  | 1 |  | — |  |  | 4 |  | 4 |
Stock-based compensation |  | (9 | ) | (4 | ) |  | (15 | ) | (7 | ) |  | 1 |  | 1 |
Uncertain tax positions |  | 1 |  | — |  |  | 4 |  | 2 |  |  | — |  | — |
Tax credits |  | (4 | ) | (2 | ) |  | (3 | ) | (1 | ) |  | (1 | ) | (1 | )
State and tax return to provision adjustment |  | (7 | ) | (3 | ) |  | (5 | ) | (3 | ) |  | (1 | ) | (1 | )
Sec 199 benefits |  | — |  | — |  |  | (3 | ) | (1 | ) |  | — |  | — |
Other |  | (2 | ) | (1 | ) |  | 3 |  | 1 |  |  | — |  | — |
Total |  | $ | 49 |  | 20 | % |  | $ | 22 |  | 11 | % |  | $ | 43 |  | 41 | %
Our effective income tax rate increased by 9% to 20% in 2018 from 11% in 2017. The increase was primarily attributable to federal legislative changes enacted in the prior year resulting from non-recurring discrete tax benefits and apportionment changes. The remaining increase consisted of a reduction from excess tax benefits related to stock-based compensation and a one-time qualified production activities deduction for certain software offerings recorded in the prior year. These increases were partially offset by decreases due to changes related to the ongoing litigation and changes in uncertain tax positions. The revaluation of deferred taxes resulted in a discrete tax benefit representing an immaterial amount in 2018, and 20% and 1% for the years ended December 31, 2017 and 2016, respectively. Deferred Income Taxes Significant components of our deferred tax assets and liabilities are as follows:
| Year Ended December 31,
(in millions) | 2018 | 2017
Deferred tax assets: |  |
Net operating losses (federal and state) | $ | 3 |  | $ | 4 |
Accrued expenses | 8 |  | 6 |
Accrued workers' compensation costs | 9 |  | 8 |
Stock-based compensation | 8 |  | 8 |
Tax benefits relating to uncertain positions | — |  | 1 |
Tax credits (federal and state) | 7 |  | 9 |
Total | 35 |  | 36 |
Valuation allowance | (7 | ) | (7 | )
Total deferred tax assets | 28 |  | 29 |
Deferred tax liabilities: |  |
Depreciation and amortization | (24 | ) | (13 | )
Deferred service revenues | (62 | ) | (79 | )
Prepaid health plan expenses | — |  | (3 | )
Prepaid commission expenses | (9 | ) | — |
Total deferred tax liabilities | (95 | ) | (95 | )
Net deferred tax liabilities | $ | (67 | ) | $ | (66 | )
We recorded an immaterial change to the valuation allowance in 2018, related to certain state net operating loss and state tax credit carryforwards. We have $61 million in state net operating loss carryforwards as of December 31, 2018 and have utilized all of the federal net operating loss carryforwards. The state net operating loss carryforwards will begin expiring in 2019. Excess tax benefits or deficiencies from equity-based award activities are now reflected as a component of the provision for income taxes instead of equity. The provision for income taxes for the year ended December 31, 2018 included $10 million of excess tax benefits resulting from equity incentive plan activities. We have $7 million state tax credit carryforwards (net of federal benefit) available that will begin expiring in 2021, which are offset by a valuation allowance of $6 million as of December 31, 2018 and 2017, respectively. We are subject to tax in U.S. federal and various state and local jurisdictions, as well as Canada. We are not subject to any material income tax examinations in federal or state jurisdictions for tax years prior to January 1, 2012. We previously paid Notices of Proposed Assessments disallowing employment tax credits totaling $11 million, plus interest of $4 million in connection with the IRS examination of Gevity HR, Inc. and its subsidiaries, which was acquired by TriNet in June 2009. TriNet filed suit in June 2016 to recover the disallowed credits, and the issue is being resolved through the litigation process. TriNet and the IRS filed cross motions for summary judgment in this matter in federal district court on February 27, 2018. On September 17, 2018, the district court granted our motion for summary judgment and denied the IRS' motion. On January 18, 2019, the district court entered judgment in favor of TriNet in the amount of $15 million, plus interest. The IRS has 60 days to appeal the district court’s decision. We will continue to vigorously defend our position through the litigation process, including the appeal, if necessary. Given the uncertainty of the outcome of any appeal, it remains possible that our recovery of the refund will be less than the total amount in dispute. Uncertain Tax Positions As of December 31, 2018 and 2017, the total unrecognized tax benefits related to uncertain income tax positions, which would affect the effective tax rate if recognized, were $6 million. A reconciliation of the beginning and ending amount of unrecognized tax benefits (excluding interest and penalties) is presented in the table below:
| Year Ended December 31,
(in millions) | 2018 | 2017 | 2016
Unrecognized tax benefits at January 1 | $ | 6 |  | $ | 1 |  | $ | 3 |
Additions for tax positions of prior periods | 1 |  | 4 |  | — |
Additions for tax positions of current period | — |  | 1 |  | — |
Reductions for tax positions of prior period: |  |  |
Settlements with taxing authorities | — |  | — |  | (2 | )
Lapse of applicable statute of limitations | (1 | ) | — |  | — |
Unrecognized tax benefits at December 31 | $ | 6 |  | $ | 6 |  | $ | 1 |
As of December 31, 2018 and 2017, the total amount of gross interest and penalties accrued were immaterial. The unrecognized tax benefit, including accrued interest and penalties are included in other liabilities on the consolidated balance sheet. It is reasonably possible the amount of the unrecognized benefit could increase or decrease within the next twelve months, which would have an impact on net income.

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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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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