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TAXES
 12 Months Ended
Dec. 31, 2024
Income Tax Disclosure [Abstract]  
TAXES TAXES
Our tax provision includes federal, state, local, and foreign income taxes.
Year Ended December 31,
202420232022
U.S. income before income taxes$742 $188 $349 
Foreign income before income taxes821 122 14 
Income before income taxes$1,563 $310 $363 
The provision (benefit) for income taxes was comprised of the following:
Year Ended December 31,
202420232022
Current:
Federal$202 $106 $100 
State47 21 10 
Foreign141 88 57 
Total current$390 $215 $167 
Deferred:
Federal$(41)$(62)$(184)
State(9)(4)(77)
Foreign(73)(59)2 
Total deferred$(123)$(125)$(259)
Provision (benefit) for income taxes
$267 $90 $(92)
The following is a reconciliation of the statutory federal income tax rate to the effective tax rate:
Year Ended December 31,
202420232022
Statutory U.S. federal income tax rate21.0 %21.0 %21.0 %
State income taxes—net of federal tax benefit2.1 4.2 5.2 
Impact of foreign operations (1)2.0 15.3 6.6 
Impact of foreign transactions(7.0)— — 
Foreign asset restructuring— (15.3)— 
Change in valuation allowances(3.1)(7.7)(58.6)
Tax contingencies2.0 9.4 6.2 
U.S. foreign tax credits valuation allowance— — (4.7)
Other0.1 2.0 (0.9)
Effective income tax rate17.1 %28.9 %(25.2)%
(1) Excludes unconsolidated hospitality ventures losses.
During the year ended December 31, 2024, significant items affecting the effective tax rate included the benefit of gains on the sale of the shares of the entities that own Hyatt Regency Aruba Resort Spa and Casino and the UVC Transaction that carry a low effective tax rate and a non-cash tax benefit as a result of the release of a valuation allowance on certain foreign deferred tax assets. These benefits were partially offset by the impact of foreign operations, tax contingencies, and state income taxes. Further, during the year ended December 31, 2024, we purchased $69 million of Investment Tax Credits from a third party, and we recognized a $4 million benefit as a reduction to income tax expense.
During the year ended December 31, 2023, significant items affecting the effective tax rate included the rate differential on foreign operations and the impact of tax contingencies. These expenses were partially offset by a non-cash tax benefit from the foreign asset restructuring undertaken related to the ALG integration and the release of a valuation allowance on U.S. federal and state deferred tax assets.
During the year ended December 31, 2022, significant items affecting the effective tax rate included a $250 million non-cash benefit as a result of the release of a valuation allowance on U.S. federal and state deferred tax assets and U.S. foreign tax credit carryforwards. This benefit was partially offset by the impact of tax contingencies and the impact of foreign operations.
The components of the net deferred tax assets and deferred tax liabilities were comprised of the following:
December 31, 2024December 31, 2023
Deferred tax assets related to:
Loyalty program$288 $238 
Employee benefits155 146 
Foreign net operating losses and credit carryforwards120 144 
Long-term operating lease liabilities89 88 
Interest deduction limitations65 66 
Deferred revenues31 115 
Federal and state net operating losses and credit carryforwards28 34 
Allowance for uncollectible assets23 24 
Investments16 10 
Unrealized losses10 11 
Other76 72 
Valuation allowance(90)(253)
Total deferred tax assets$811 $695 
Deferred tax liabilities related to:
Intangibles$(277)$(169)
Operating lease ROU assets(95)(95)
Investments(69)(18)
Property and equipment(43)(74)
Prepaid expenses(8)(24)
Unrealized gains(5)(5)
Other(19)(18)
Total deferred tax liabilities$(516)$(403)
Net deferred tax assets$295 $292 
Recorded on our consolidated balance sheets as:
Deferred tax assets—noncurrent$466 $358 
Deferred tax liabilities—noncurrent(171)(66)
Total$295 $292 
During the year ended December 31, 2024, significant changes to our deferred tax assets included an increase of $50 million related to the loyalty program deferred tax asset as a result of changes in the loyalty program's deferred revenue liability and a $62 million reduction of valuation allowance balance due to the release of a valuation allowance on certain foreign deferred tax assets. Further, the deferred tax asset on the deferred revenue liability related to the paid membership program decreased $84 million with a corresponding decrease to the valuation allowance as a result of the UVC Transaction. Significant changes to our deferred tax liabilities during the year ended December 31, 2024 included a $108 million increase in intangibles driven by the Bahia Principe Transaction.
At December 31, 2024, we had $144 million of deferred tax assets for future tax benefits related to federal, state, and foreign net operating losses and $4 million of benefits related to federal and state credits. Of these deferred tax assets, $44 million related to net operating losses and federal and state credits that expire in 2025 through 2044 and $104 million related to federal, state, and foreign net operating losses that have no expiration date and may be carried forward indefinitely. A $90 million valuation allowance was recorded on deferred tax assets that we do not believe are more likely than not to be realized.
At December 31, 2024, we had $645 million of accumulated undistributed earnings generated by our foreign subsidiaries, the majority of which have been subject to U.S. tax. Any potential additional taxes due with respect to such earnings or the excess of book basis over tax basis of our foreign investments would generally be limited to an insignificant amount of foreign withholding and/or U.S. state income taxes. We continue to assert that undistributed net earnings with respect to certain foreign subsidiaries that have not previously been taxed in the U.S. are indefinitely reinvested.
At December 31, 2024, December 31, 2023, and December 31, 2022, total unrecognized tax benefits recorded in other long-term liabilities on our consolidated balance sheets were $366 million, $301 million, and $253 million, of which $137 million, $120 million, and $102 million, respectively, would impact the effective tax rate, if recognized. It is reasonably possible that a reduction of up to $5 million of unrecognized tax benefits could occur within 12 months resulting from the expiration of certain tax statutes of limitations. Further, while it is reasonably possible that the amount of uncertain tax benefits associated with the U.S. treatment of the loyalty program discussed below could significantly change within the next 12 months, at this time, we are not able to estimate the range by which the reasonably possible outcomes of the pending litigation could impact our uncertain tax benefits within the next 12 months.
A reconciliation of unrecognized tax benefits is as follows:
202420232022
Unrecognized tax benefits—January 1$301 $253 $205 
Total increases—current-period tax positions67 54 38 
Total increases (decreases)—prior-period tax positions11 (3)22 
Lapse of statute of limitations(8)(9)(5)
Foreign currency translation adjustments(5)6 (7)
Unrecognized tax benefits—December 31$366 $301 $253 
In 2024, the $65 million net increase in uncertain tax positions was primarily related to an accrual for the U.S. treatment of the loyalty program. The increase in prior-period tax positions includes a $38 million increase related to foreign tax filing positions recorded as part of the Bahia Principe Transaction offset by a $32 million reduction related to foreign tax filing positions as a result of the UVC Transaction.
In 2023, the $48 million net increase in uncertain tax positions was primarily related to foreign tax filing positions and an accrual for the U.S. treatment of the loyalty program.
In 2022, the $48 million net increase in uncertain tax positions was primarily related to foreign tax filing positions identified as a result of the ALG Acquisition and an accrual for the U.S. treatment of the loyalty program.
We recognize accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense. Total gross accrued interest and penalties were $103 million, $133 million, and $111 million at December 31, 2024, December 31, 2023, and December 31, 2022, respectively.
The amount of interest and penalties recognized as a component of our income tax expense in 2024 and 2023 was $42 million and $23 million, respectively, primarily related to interest accrued on the U.S. treatment of the loyalty program and foreign tax matters. The amount of interest and penalties recognized as a component of our income tax expense in 2022 was a $21 million expense, primarily related to foreign tax matters.
We are subject to audits by federal, state, and foreign tax authorities. U.S. tax years 2018 through 2020 are currently under field exam. U.S. tax years 2009 through 2011 have been subject to a U.S. Tax Court case concerning the tax treatment of the loyalty program in which the IRS is asserting that loyalty program contributions are taxable income to the Company. U.S. tax years 2012 through 2017 are pending the outcome of the U.S. Tax Court.
The Tax Court issued an opinion on October 2, 2023 related to the aforementioned case and determined that the Company must recognize approximately $12 million in net taxable income for the tax years 2009 through 2011, but that the Company need not recognize approximately $228 million in net taxable income related to tax years that preceded 2009. The Tax Court entered its decision on September 13, 2024. The Company filed a Notice of Appeal to the U.S. Court of Appeals on December 9, 2024. As part of the appeal, the Company will pay the tax liability and interest related to the 2009 through 2011 tax years as determined by the Tax Court, which is estimated to be $2 million. If the Tax Court's opinion is upheld on appeal, the estimated income tax payment due for the subsequent years 2012 through 2024 is $280 million, including $46 million of estimated interest, net of federal benefit. We believe we have an adequate uncertain tax liability recorded in accordance with Accounting Standards Codification 740, Income Taxes, for this matter and believe that the ultimate outcome of this matter will not have a material effect on our consolidated financial position, results of operations, or liquidity.
Through a prior acquisition, we assumed an assessment of additional corporate income tax from the Mexican tax authorities, which was in the process of being appealed, primarily related to disallowed deductions taken on historical tax returns. During the year ended December 31, 2024, our request for appeal to a higher court for one of the tax years was denied, and the assessment was finalized. At December 31, 2024, we had an $18 million tax liability recorded in other long-term
liabilities on our consolidated balance sheet in connection with this matter. Our filing position for the additional tax years and matters assessed is more likely than not to be sustained. As the tax benefit that is more than 50% likely of being realized upon settlement is zero, we recorded a $13 million uncertain tax liability in other long-term liabilities on our consolidated balance sheet at December 31, 2024.
Further, the Mexican tax authorities disallowed credits taken on historical tax returns and applied value added taxes to certain transactions. In accordance with Accounting Standards Codification 450, Contingencies, we have not recorded a liability associated with the additional value added tax as we do not believe a loss is probable. At December 31, 2024, our maximum exposure is not expected to exceed $12 million.
We have several state audits pending, including in California and Illinois. State income tax returns are generally subject to examination for a period of three to five years after filing of the return. However, the state impact of any federal changes remains subject to examination by various states for a period generally up to one year after formal notification to the states of the federal changes. We also have several foreign audits pending. The statutes of limitations for the foreign jurisdictions ranges from three to ten years after filing the applicable tax return.