SCHWAB CHARLES CORP
For the period ended Dec 31, 2023. Filed Feb 23, 2024.
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FY2023 · Filed Feb 23, 2024
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Taxes on Income
- Taxes on Income
The components of taxes on income are as follows:
| Year Ended December 31, | 2023 | 2022 | 2021 |
|---|---|---|---|
| Current: | |||
| Federal | $1,658 | $1,889 | $1,507 |
| State | 131 | 334 | 298 |
| Total current | 1,789 | 2,223 | 1,805 |
| Deferred: | |||
| Federal | (395) | (26) | 38 |
| State | (83) | 8 | 15 |
| Total deferred | (478) | (18) | 53 |
| Taxes on income | $1,311 | $2,205 | $1,858 |
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The temporary differences that created deferred tax assets and liabilities are detailed below:
| December 31, | 2023 | 2022 |
|---|---|---|
| Deferred tax assets: | ||
| Net unrealized loss on available for sale securities | $5,610 | $7,159 |
| Section 174 capitalization associated with internal-use software development | 363 | 96 |
| Employee compensation, severance, and benefits | 272 | 251 |
| Operating lease liabilities | 216 | 242 |
| Net operating loss carryforwards | 8 | 9 |
| Other | 219 | 158 |
| Total deferred tax assets | 6,688 | 7,915 |
| Valuation allowance | (16) | (9) |
| Deferred tax assets — net of valuation allowance | 6,672 | 7,906 |
| Deferred tax liabilities: | ||
| Amortization of acquired intangible assets | (1,758) | (1,837) |
| Capitalized internal-use software development costs | (200) | (187) |
| Operating lease ROU assets | (156) | (224) |
| Equipment, office facilities, and property | (109) | (151) |
| Other | (149) | (137) |
| Total deferred tax liabilities | (2,372) | (2,536) |
| Deferred tax assets (liabilities) — net (1) | $4,300 | $5,370 |
(1)Amounts are included in other assets on the consolidated balance sheet at December 31, 2023 and 2022.
A reconciliation of the federal statutory income tax rate to the effective income tax rate is as follows:
| Year Ended December 31, | 2023 | 2022 | 2021 |
|---|---|---|---|
| Federal statutory income tax rate | 21.0% | 21.0% | 21.0% |
| State income taxes, net of federal tax benefit | 1.6 | 3.5 | 3.4 |
| Research and development credits | (1.2) | — | — |
| Equity compensation benefit | (0.5) | (0.5) | (1.2) |
| Other | (0.3) | (0.5) | 0.9 |
| Effective income tax rate | 20.6% | 23.5% | 24.1% |
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
| December 31, | 2023 | 2022 |
|---|---|---|
| Balance at beginning of year | $205 | $271 |
| Additions for tax positions related to the current year | 46 | 36 |
| Additions for tax positions related to prior years | 177 | 12 |
| Reductions for tax positions related to prior years | (36) | (59) |
| Reductions due to lapse of statute of limitations | (8) | (13) |
| Reductions for settlements with tax authorities | (4) | (42) |
| Balance at end of year | $380 | $205 |
Unrecognized tax benefits totaled $380 million and $205 million as of December 31, 2023 and 2022, respectively, $315 million and $165 million of which if recognized, would affect the annual effective tax rate.
Interest and penalties were accrued related to unrecognized tax benefits in tax expense. At December 31, 2023 and 2022, we had accrued approximately $72 million and $41 million, respectively, for the payment of interest and penalties.
The Company and its subsidiaries are subject to routine examinations by the respective federal, state, and applicable local jurisdictions’ taxing authorities. Federal returns for 2017 through 2022 remain subject to examination. The years open to examination by state and local governments vary by jurisdiction.
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