AETNA INC /PA/ | 2013 | FY | 3

13.
Income Taxes

The components of our income tax provision in 2013, 2012 and 2011 were as follows:
(Millions)
2013

2012

2011

Current taxes:
 
 
 
  Federal
$
901.9

$
731.5

$
935.8

  State
55.7

48.4

101.0

Total current taxes
957.6

779.9

1,036.8

Deferred taxes (benefits):
 
 
 
  Federal
63.0

112.8

50.0

  State
8.0

(5.2
)
5.3

Total deferred income taxes
71.0

107.6

55.3

Total income taxes
$
1,028.6

$
887.5

$
1,092.1

 
 
 
 


Income taxes were different from the amount computed by applying the statutory federal income tax rate to income before income taxes as follows:
(Millions)
2013

2012

2011

Income before income taxes
$
2,940.5

$
2,545.4

$
3,077.8

Tax rate
35
%
35
%
35
%
Application of the tax rate
1,029.2

890.9

1,077.2

Tax effect of:
 
 
 
   Other, net
(.6
)
(3.4
)
14.9

Income taxes
$
1,028.6

$
887.5

$
1,092.1

 
 
 
 


The significant components of our net deferred tax assets at December 31, 2013 and 2012 were as follows:
(Millions)
2013

2012

Deferred tax assets:
 
 
  Reserve for anticipated future losses on discontinued products
$
225.2

$
157.4

  Employee and postretirement benefits
130.9

474.1

  Investments, net
76.0

79.2

  Deferred policy acquisition costs
21.9

28.5

  Insurance reserves
237.4

166.8

  Debt fair value adjustments
62.0

—

  Net operating losses
176.2

134.8

  Severance and facilities
30.1

20.4

  Litigation-related settlement
43.5

43.0

  Other
106.3

77.6

Gross deferred tax assets
1,109.5

1,181.8

Less: Valuation allowance
139.3

134.4

Deferred tax assets, net of valuation allowance
970.2

1,047.4

Deferred tax liabilities:
 
 
  Unrealized gains on investment securities
192.8

458.9

  Goodwill and other acquired intangible assets
861.9

400.9

  Cumulative depreciation and amortization
258.2

234.6

Total gross deferred tax liabilities
1,312.9

1,094.4

Net deferred tax assets (1)
$
(342.7
)
$
(47.0
)
 
 
 
(1)  
Includes $521.5 million and $426.5 million classified as current assets at December 31, 2013 and 2012, respectively. Includes $864.2 million and $473.5 million classified as long-term liabilities at December 31, 2013 and 2012, respectively.

Valuation allowances are provided when we estimate that it is more likely than not that deferred tax assets will not be realized. A valuation allowance has been established on certain federal and state net operating losses. We base our estimates of the future realization of deferred tax assets primarily on historic taxable income and existing deferred tax liabilities.

We participate in the Compliance Assurance Process (the “CAP”) with the Internal Revenue Service (the “IRS”). Under the CAP, the IRS undertakes audit procedures during the tax year and as the return is prepared for filing. The IRS has concluded its CAP audit of our 2012 tax return as well as all the prior years. We expect the IRS will conclude its CAP audit of our 2013 tax return in 2014.

We are also subject to audits by state taxing authorities for tax years from 2000 through 2012. We believe we carry appropriate reserves for any exposure to state tax issues.

At both December 31, 2013 and December 31, 2012 we did not have material uncertain tax positions reflected in our consolidated balance sheets.

We paid net income taxes of $891 million, $741 million and $899 million in 2013, 2012 and 2011, respectively.

us-gaap:IncomeTaxDisclosureTextBlock