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INCOME TAXES | 12 Months Ended
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Dec. 31, 2020
Income Tax Disclosure [Abstract] |
INCOME TAXES | INCOME TAXES Provision for Income Taxes We are subject to tax in U.S. federal and various state and local jurisdictions, as well as Canada. We are open to federal and significant state income tax examinations for tax year 2016 and subsequent years. The provision for income taxes consists of the following:
| Year Ended December 31,
(in millions) | 2020 | 2019 | 2018
Current: |  |  |
Federal | $ | 96 |  | $ | 53 |  | $ | 41 |
State | 30 |  | 12 |  | 7 |
Foreign | 1 |  | — |  | — |
Total Current | 127 |  | 65 |  | 48 |
Deferred: |  |  |
Federal | (33) |  | (2) |  | (3) |
State | (9) |  | (5) |  | 4 |
Total Deferred | (42) |  | (7) |  | 1 |
Total | $ | 85 |  | $ | 58 |  | $ | 49 |
The U.S. federal statutory income tax rate reconciled to our effective tax rate is as follows:
| Year Ended December 31,
| 2020 | 2019 | 2018
(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)
| $ | 357 |  |  |  | $ | 270 |  |  |  | $ | 241 |  |  |
U.S. federal statutory tax rate |  | $ | 75 |  | 21 | % |  | $ | 57 |  | 21 | % |  | $ | 51 |  | 21 | %
State income taxes, net of federal benefit |  | 25 |  | 7 |  |  | 20 |  | 7 |  |  | 18 |  | 8 |
Nondeductible meals, entertainment and penalties |  | — |  | — |  |  | 1 |  | — |  |  | 1 |  | — |
Stock based compensation |  | (2) |  | — |  |  | (1) |  | — |  |  | (9) |  | (4) |
Uncertain tax positions |  | 1 |  | — |  |  | — |  | — |  |  | 1 |  | — |
Tax credits |  | (6) |  | (2) |  |  | (7) |  | (3) |  |  | (5) |  | (2) |
State and tax return to provision adjustments |  | (7) |  | (2) |  |  | (8) |  | (3) |  |  | (7) |  | (3) |
Sec 199 benefits |  | — |  | — |  |  | (1) |  | — |  |  | — |  | — |
Other |  | (1) |  | — |  |  | (3) |  | (1) |  |  | (1) |  | — |
Total |  | $ | 85 |  | 24 | % |  | $ | 58 |  | 21 | % |  | $ | 49 |  | 20 | %
Our effective income tax rate increased by 3% to 24% in 2020 from 21% in 2019. The increase was primarily attributable to a decrease in excludable income for state tax purposes, a decrease in tax credits and a benefit recorded in the prior year from changes in valuation allowance. Deferred Income Taxes Significant components of our deferred tax assets and liabilities are as follows:
| Year Ended December 31,
(in millions) | 2020 | 2019
Deferred tax assets: |  |
Net operating losses (federal and state) | $ | 3 |  | $ | 3 |
Accrued expenses | 14 |  | 8 |
Accrued workers' compensation costs | 9 |  | 9 |
Recovery credit | 26 |  | — |
Operating lease liabilities | 15 |  | 17 |
Stock based compensation | 3 |  | 3 |
Tax benefits relating to uncertain positions | 1 |  | 1 |
Tax credits (federal and state) | 8 |  | 7 |
Total | 79 |  | 48 |
Valuation allowance | (5) |  | (5) |
Total deferred tax assets | 74 |  | 43 |
Deferred tax liabilities: |  |
Depreciation and amortization | (37) |  | (27) |
Deferred service revenues | (20) |  | (41) |
Prepaid commission expenses | (22) |  | (19) |
Operating lease right-of-use assets | (13) |  | (15) |
Other | (2) |  | (1) |
Total deferred tax liabilities | (94) |  | (103) |
Net deferred tax liabilities | $ | (20) |  | $ | (60) |
As of December 31, 2020, we have an acquired federal net operating loss of $2 million, of which an immaterial amount, if unused, will expire in 2028 and the rest can be carried forward indefinitely. As of December 31, 2020 and 2019, we have various state net operating loss carryforwards of $39 million and $53 million, respectively, which, if unused, will expire in years 2021 through 2039 with the exception of an immaterial amount that will be carried forward indefinitely. As of December 31, 2020 and 2019, we have state tax credit carryforwards (net of federal benefit) of $6 million and $6 million, respectively available that will begin expiring in 2021, which are offset by a valuation allowance of $4 million and $4 million as of December 31, 2020 and 2019, respectively. The provision for income taxes for the year ended December 31, 2020 included $4 million of excess tax benefits resulting from equity incentive plan activities. 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 U.S. filed cross motions for summary judgment in federal district court. On September 17, 2018, the district court granted our motion for summary judgment and denied the U.S.'s motion. On January 18, 2019, the district court entered judgment in favor of TriNet in the amount of $15 million, plus interest. The U.S. filed a notice of appeal of the federal district court's decision on March 18, 2019. The U.S. filed its opening brief in the court of appeals on June 10, 2019 and we filed our answering brief on July 24, 2019 to which the government filed its reply brief on September 6, 2019. Oral arguments occurred on March 11, 2020. On November 5, 2020, the court of appeals affirmed the district court’s judgement in favor of TriNet. The IRS has 150 days to petition the Supreme Court. We will continue to vigorously defend our position through the litigation process. 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. Valuation Allowance We have recorded a valuation allowance to reflect the estimated amount of deferred tax assets that may not be realized. A reconciliation of the beginning and ending amount of the valuation allowance is presented in the table below:
| Year Ended December 31,
(in millions) | 2020 | 2019 | 2018
Valuation allowance at January 1 | $ | 5 |  | $ | 7 |  | $ | 7 |
Credited/ charged to net income | — |  | (2) |  | — |
Valuation allowance at December 31 | 5 |  | 5 |  | 7 |
Uncertain Tax Positions As of December 31, 2020 and 2019, the total unrecognized tax benefits related to uncertain income tax positions, which would affect the effective tax rate if recognized, were $8 million and $7 million, respectively. 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) | 2020 | 2019 | 2018
Unrecognized tax benefits at January 1 | $ | 7 |  | $ | 6 |  | $ | 6 |
Additions for tax positions of prior periods | 1 |  | 1 |  | 1 |
Additions for tax positions of current period | 1 |  | 1 |  | — |
Reductions for tax positions of prior period: |  |  |
Settlements with taxing authorities | (1) |  | — |  | — |
Lapse of applicable statute of limitations | — |  | (1) |  | (1) |
Unrecognized tax benefits at December 31 | $ | 8 |  | $ | 7 |  | $ | 6 |
As of December 31, 2020 and 2019, the total amount of gross interest and penalties accrued were immaterial. The unrecognized tax benefit, including accrued interest and penalties, is included in other non-current liabilities on the consolidated balance sheets. 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://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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