FASB ASU 2023-09: Preparing for New Income Tax Disclosure Requirements

November 3, 2026

The Bottom Line

The Financial Accounting Standards Board (FASB) issued ASU 2023-09, Improvements to Income Tax Disclosures, to provide greater transparency into companies’ income tax expense and income taxes paid.

This ASU significantly expands what companies must disclose about their effective tax rate and the cash income taxes they pay. It is now effective for both public business entities (fiscal years beginning after December 15, 2024) and all other entities (fiscal years beginning after December 15, 2025). Implementation may require additional data collection, analysis, documentation, and updates to existing reporting processes. This alert highlights the changes and steps you can take to prepare.

What’s Changing?

ASU 2023-09 targets two areas of ASC 740 disclosure:

Public business entities must present an annual tabular reconciliation in both dollar amounts and percentages using eight prescribed categories, as applicable. Specified categories require further disaggregation by nature and/or jurisdiction when the applicable 5% threshold is met.

All entities, public and private, must disclose income taxes paid, net of refunds received, disaggregated by federal, state, and foreign taxes. Individual jurisdiction accounting for 5% or more of total income taxes paid, net of refunds received, must also be disclosed separately.

All entities must also disclose pretax income (loss) from continuing operations separately between domestic and foreign, and income tax expense (benefit) from continuing operations separately among federal, state, and foreign categories. The ASU also eliminates certain existing disclosures related to unrecognized tax benefits and unrecognized deferred tax liabilities.

These changes affect financial statement disclosures; they do not change how income tax expense is measured.

Private and other non-public entities are not required to produce the numeric tabular rate reconciliation, but they must still qualitatively describe the categories and jurisdictions driving a significant difference between the statutory and effective rate — and they face the same income-taxes-paid disaggregation requirement as public companies.

Who Is Affected, and When

Entity Type Effective For Numeric Rate Reconciliation?
Public business entities Annual periods beginning after 12/15/2024 (CY2025) Required — tabular, $ and %
All other entities (private, not-for-profit, etc.) Annual periods beginning after 12/15/2025 (CY2026) Not required — qualitative disclosure only

These requirements apply to entities subject to ASC 740. Applicability to pass-through and tax-exempt entities depends on whether they have income taxes within the scope of ASC 740.

Early adoption is permitted. The amendments are applied prospectively, though retrospective application is permitted.

Why This Is More Than a Disclosure Update

The new rules don’t change how tax expense is measured — they change how much detail must sit behind the numbers you already report. In practice, that means:

  • Jurisdiction-by-jurisdiction tracking of cash taxes paid, which many provision processes and general ledgers are not currently structured to isolate cleanly.
  • For public business entities, mapping effective tax rate reconciling items into the ASU’s eight prescribed categories, as applicable, and providing additional detail by nature and/or jurisdiction when required under the applicable 5% disclosure thresholds.
  • Evaluating the applicable 5% disclosure thresholds each year and documenting the judgment behind what is, and isn’t, broken out.
  • Building (and maintaining) a repeatable process and supporting workpapers auditors will expect to see, not just a one-time schedule.

How Can You Prepare?

The new requirements may require more detailed data collection, analysis, and documentation than your current tax provision and financial reporting processes capture. Preparing early can help ensure the necessary information is available and support an efficient year-end reporting process.

Compile income tax payments and refunds separately for federal, individual state and local, and foreign jurisdictions. This information may be maintained across multiple systems, bank accounts, or tax preparers, particularly for multistate and multinational entities. Supporting schedules should reconcile to your accounting records.

 

Each year, entities will need to evaluate which jurisdictions meet the 5% threshold for separate disclosure of income taxes paid. Private companies must also identify and explain the categories and jurisdictions contributing to significant differences between statutory and effective tax rates. Public business entities must additionally organize their rate reconciliations using the eight prescribed categories and apply the related disaggregation requirements.

 

Work with your engagement team and tax preparer to identify gaps in your current data collection and tax provision workflows. Establishing clear responsibilities, supporting schedules, and timelines before the first required disclosure can simplify implementation and future reporting.

 

Retain support for jurisdictional classifications, threshold calculations, and significant judgments. Your engagement team may request additional schedules or explanations during the financial statement preparation and review or audit process.

 

Discuss the requirements with your GRF engagement team and tax preparer early so that everyone understands the information needed, who will prepare it, and when it should be available.

Early preparation can make the disclosure process smoother. Gathering the necessary information and coordinating with your GRF engagement team and tax preparer before year-end can help minimize last-minute requests and keep financial reporting on track.

Questions?

We’re happy to walk through how ASU 2023-09 applies to your specific facts and to scope the transition work together. Please reach out to your engagement team to schedule a readiness discussion.

This alert is provided for general informational purposes only and does not constitute accounting, tax, or legal advice. Please consult your engagement team regarding how these requirements apply to your specific circumstances.

Mark Sakats, CPA

Principal, Tax

Susanna (Sue) Chon, CPA, CFE

Partner, Audit & Assurance

Amy Boland, CPA

Vice President, Partner and Director, Audit & Assurance

Lisa W. Heller, CPA

Partner and Director, Nonprofit Tax

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