Cummins Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

INCOME TAXES (Tables)

INCOME TAXES (Tables)

12 Months Ended

Dec. 31, 2021

Schedule of Income before Income Tax, Domestic and Foreign

The following table summarizes income before income taxes:


	Years ended December 31,
In millions	2021		2020		2019

U.S. income	$	1,251	$	1,134	$	1,677
Foreign income	1,500		1,204		1,157
Income before income taxes	$	2,751	$	2,338	$	2,834

Schedule of Components of Income Tax Expense (Benefit)

Income tax expense (benefit) consisted of the following:


	Years ended December 31,
In millions	2021		2020		2019
Current
U.S. federal and state	$	261	$	162	$	288
Foreign	319		358		282

Total current income tax expense	580		520		570
Deferred
U.S. federal and state	(12)		2		(32)
Foreign	19		22		28
Impact of India tax law changes	—		(17)		—
Total deferred income tax expense (benefit)	7		7		(4)
Income tax expense	$	587	$	527	$	566

Schedule of Effective Income Tax Rate Reconciliation

A reconciliation of the statutory U.S. federal income tax rate to the effective tax rate was as follows:


	Years ended December 31,
	2021		2020		2019
Statutory U.S. federal income tax rate	21.0	%	21.0	%	21.0	%
State income tax, net of federal effect	1.1		1.0		1.1
Differences in rates and taxability of foreign subsidiaries and joint ventures	0.1		3.6		1.5
Research tax credits	(0.6)		(1.3)		(1.5)
Foreign derived intangible income	(1.0)		(1.2)		(1.3)
Impact of India tax law changes	—		(0.7)		—
Other, net	0.7		0.1		(0.8)
Effective tax rate	21.3	%	22.5	%	20.0	%

Schedule of Other Income Tax Adjustments

The India Tax Law Change resulted in the following adjustments to the Consolidated Statements of Net Income for the year ended December 31, 2020:




In millions	Favorable (Unfavorable)
Equity, royalty and interest income from investees	$	37
Income tax expense (1)	17
Less: Net income attributable to noncontrolling interests	(19)

Net income statement impact	$	35



(1) The adjustment to "Income tax expense" includes $15 million of favorable discrete items.

The year ended December 31, 2019, contained $34 million of favorable net discrete tax items, primarily due to withholding taxes and provision to return adjustments.

Schedule of Deferred Tax Assets and Liabilities

Carryforward tax benefits and the tax effect of temporary differences between financial and tax reporting that give rise to net deferred tax assets (liabilities) were as follows:


	December 31,
In millions	2021		2020
Deferred tax assets
U.S. and state carryforward benefits	$	218	$	223
Foreign carryforward benefits	177		159
Employee benefit plans	254		273
Warranty expenses	445		445

Lease liabilities	108		107
Accrued expenses	111		93
Other	78		52
Gross deferred tax assets	1,391		1,352
Valuation allowance	(360)		(346)
Total deferred tax assets	1,031		1,006
Deferred tax liabilities
Property, plant and equipment	(272)		(258)
Unremitted income of foreign subsidiaries and joint ventures	(197)		(185)
Employee benefit plans	(355)		(229)
Lease assets	(105)		(103)
Other	(77)		(77)
Total deferred tax liabilities	(1,006)		(852)
Net deferred tax assets	$	25	$	154

Our Consolidated Balance Sheets contain the following tax related items:


	December 31,
In millions	2021		2020
Prepaid expenses and other current assets

Refundable income taxes	$	101	$	172
Other assets
Deferred income tax assets	428		479
Long-term refundable income taxes	—		23
Other accrued expenses
Income tax payable	107		82
Other liabilities
Long-term income tax	263		289
Deferred income tax liabilities	403		325

Schedule of Unrecognized Tax Benefits Roll Forward

A reconciliation of unrecognized tax benefits for the years ended December 31, 2021, 2020 and 2019 was as follows:


	December 31,
In millions	2021		2020		2019
Balance at beginning of year	$	122	$	77	$	71
Additions to current year tax positions	11		9		23
Additions to prior years' tax positions	16		49		5
Reductions to prior years' tax positions	(28)		(13)		(11)
Reductions for tax positions due to settlements with taxing authorities	(32)		—		(11)

Balance at end of year	$	89	$	122	$	77