Net operating loss

  
  
from the 2020 tax year and other various amendments of prior year tax returns. The Company also has gross state NOLs of approximately $413 million that expire beginning in 2023 and continuing through 2041.   
Virgin America experienced multiple “ownership changes” as defined in Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), the most recent being its acquisition by the Company. Section 382 of the Code imposes an annual limitation on the utilization of pre-ownership change NOLs. Any unused annual limitation may, subject to certain limits, be carried over to later years. During 2021, all remaining NOLs acquired through the acquisition of Virgin America were utilized to offset federal taxable income.   
Valuation allowances are provided to reduce the related deferred income tax assets to an amount which will, more likely than not, be realized. The Company has determined it is more likely than not that a portion of the state NOL carryforward will not be realized and, therefore, has provided a valuation allowance of $20 million for that portion as of December 31, 2021. The Company has likewise concluded it is more likely than not that all of its federal and the remaining state deferred income tax assets will be realized and thus no additional valuation allowance has been recorded. The Company reassesses the need for a valuation allowance each reporting period.   
Components of Income Tax Expense (Benefit)  
The components of income tax expense (benefit) are as follows (in millions): 

|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|   | 2021 |  | 2020 |  | 2019 |
| Current income tax expense (benefit): |   |  |   |  |   |
| Federal | $ | 40  |  |  | $ | (212) |  |  | $ | 26  |  |
| State | 16  |  |  | (11) |  |  | 13  |  |
| Total current income tax expense (benefit) | 56  |  |  | (223) |  |  | 39  |  |
|  |  |  |  |  |  |
| Deferred income tax expense (benefit): |   |  |   |  |   |
| Federal | 80  |  |  | (246) |  |  | 175  |  |
| State | 15  |  |  | (47) |  |  | 33  |  |
| Total deferred income tax expense (benefit) | 95  |  |  | (293) |  |  | 208  |  |
| Income tax expense (benefit) | $ | 151  |  |  | $ | (516) |  |  | $ | 247  |  |

  
Income Tax Rate Reconciliation  
Income tax expense (benefit) reconciles to the amount computed by applying the 2021 U.S. federal rate of 21% to income (loss) before income tax and for deferred taxes as follows (in millions): 

|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|   | 2021 |  | 2020 |  | 2019 |
| Income (loss) before income tax | $ | 629  |  |  | $ | (1,840) |  |  | $ | 1,016  |  |
|  |  |  |  |  |  |
| Expected tax expense (benefit) | 132  |  |  | (386) |  |  | 213  |  |
| Nondeductible expenses | 10  |  |  | 9  |  |  | 9  |  |
| State income taxes | 20  |  |  | (62) |  |  | 36  |  |
| Tax law changes | (14) |  |  | (93) |  |  | (9) |  |
| Valuation allowance | 1  |  |  | 18  |  |  | —  |  |
| Other - net | 2  |  |  | (2) |  |  | (2) |  |
| Actual tax expense (benefit) | $ | 151  |  |  | $ | (516) |  |  | $ | 247  |  |
|  |  |  |  |  |  |
| Effective tax rate | 24.0  | % |  | 28.0  | % |  | 24.3  | % |

 The Company recorded a current tax benefit of $14 million in 2021 as a result of provisions outlined in the CARES Act. As a result of tax changes signed into law during 2017, with final regulations issued in 2019, the Company recorded a current tax benefit of $93 million in 2020.  
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