FASB’s ASU 2023-09: Transforming Income Tax Disclosures — Is Your Company Ready?

This article was originally published in August 2025 and updated on January 20, 2026. While supporting clients with the implementation of ASU 2023-09, we’ve encountered several recurring questions. Read the FAQs.

The Financial Accounting Standards Board (FASB) has significantly revamped income tax disclosure requirements through Accounting Standards Update (ASU) 2023-09, designed to enhance transparency and ensure investors have the necessary data to evaluate tax risks effectively. With these sweeping changes to ASC 740, companies face new complexities. Is your organization fully prepared?  Now is the time to evaluate the implications of ASU 2023-09 and its impact on your organization.

Key Changes Under ASU 2023-09

Enhanced Rate Reconciliation

Public Business Entities (“PBEs”) must now present a detailed reconciliation from statutory to effective tax rates, distinctly highlighting significant tax drivers such as:

• State and local taxes, net of federal impacts
• Foreign tax effects
• Effects of cross-border tax laws
• Impacts from enacted tax legislation
• Tax credits
• Change in valuation allowances
• Non-taxable or non-deductible items
• Changes in unrecognized tax benefits

These categories must be reported in both numerical amounts and percentages. Items that constitute 5% or more of the statutory rate multiplied by pre-tax income must be separately disclosed and discussed (e.g., for a US-based entity subject to the 21% statutory tax rate, any item that increases or decreases the tax rate by 1.05% or more).

This enhanced reconciliation isn’t just a compliance burden—it’s an opportunity to proactively communicate your tax narrative to company stakeholders.

Disaggregated Income Taxes Paid

All entities, including private companies, must disclose income taxes paid, net of refunds, broken down by federal, state, and foreign jurisdictions. Furthermore, taxes paid to any jurisdiction exceeding 5% of total taxes paid require separate disclosure. The 5% threshold is evaluated using the absolute value of the net refund or net payment in each jurisdiction compared to the absolute value of the total income taxes paid (net of refunds received).

Amendments to Other Disclosures

The amendments remove the requirement for entities to disclose either the expected changes in unrecognized tax benefits over the next 12 months or a statement indicating that such an estimate cannot be provided.

The amendments also eliminate the requirement to disclose the cumulative amount of each type of temporary difference when a deferred tax liability is not recognized because of the exceptions to the comprehensive recognition of deferred taxes related to subsidiaries and corporate joint ventures.

Spotlight on State and Local Disclosures

ASU 2023-09 introduces targeted requirements around state and local tax disclosures. Companies must now qualitatively describe significant jurisdictions contributing over half of the state and local effective tax rate impact. For example, if your company files across 50 states but most liabilities arise from six jurisdictions, your disclosure focuses on those six—avoiding unnecessary details while clearly presenting impactful information.

Early Adoption—What You Need to Know

While ASU 2023-09 becomes mandatory for PBEs for fiscal years starting after December 15, 2024, and for all others after December 15, 2025, early adoption is available immediately for financial statements not yet issued or made available for issuance. Entities can apply these disclosures prospectively or retrospectively, providing flexibility to best align with internal resources and investor communication strategies.

Choosing early adoption could signal to investors and stakeholders your proactive approach and commitment to enhanced financial transparency—potentially setting your firm apart in investor relations.

Preparing for Implementation

Implementing ASU 2023-09 effectively isn’t just about compliance—it’s a strategic move that can elevate stakeholder trust and confidence. Companies should:

• Assess and enhance current accounting systems and processes to capture detailed data required for these disclosures.
• Train and prepare finance and tax personnel to meet heightened reporting expectations.
• Develop a clear communication strategy to leverage new disclosure requirements in stakeholder relations.

ASU 2023-09 FAQ

Is your Finance & Accounting team ready for the FASB’s new ASU 2023-09 Income Tax Disclosure requirements? (This insight was initially published in August 2025 and updated in January 2026 to address common questions that have arisen during implementation).

While assisting our clients in their implementation of ASU 2023-09, there have been several questions that have arisen in the application of these new requirements.

Question #1 – As a reminder, what is ASU 2023-09 and why was it issued?

Answer

ASU 2023-09 is a Financial Accounting Standards Board (FASB) update to ASC 740, aimed at improving the transparency and usefulness of income tax disclosures in financial statements. It introduces new requirements for both public and private entities, focusing on rate reconciliation, disaggregation of income taxes paid, and other expanded disclosures.

The guidance applies to all entities subject to income tax reporting under US GAAP, including public business entities (PBEs) and non-public entities (private companies, not-for-profits, pass-throughs). The requirements differ slightly for PBEs and non-PBEs.

Question #2 – What are the effective dates and transition options?

Answer

• PBEs: Fiscal years beginning after December 15, 2024 (calendar year 2025).

• Non-PBEs: Fiscal years beginning after December 15, 2025 (calendar year 2026).

Entities may adopt prospectively or retrospectively; early adoption is permitted.

Question #3 – What are the new requirements for rate reconciliation disclosures?

Answer

• PBEs: Must present rate reconciliation in a tabular format, showing both dollar amounts and percentages for each reconciling item. Categories include state/local taxes, foreign tax effects, changes in tax laws/rates, cross-border tax laws, tax credits, valuation allowances, nontaxable/nondeductible items, changes in unrecognized tax benefits, and other adjustments. Items meeting a 5% threshold must be individually disclosed.

If the absolute value of a reconciling item is equal to or greater than 5% of the absolute value of income or loss from continuing operations before income taxes,

multiplied by the applicable statutory federal income tax rate, that item must be separately disclosed. The FASB chose the 5% threshold to be consistent with the existing SEC requirement in Regulation S-X 4-08(h)(2).

• Non-PBEs: Must provide qualitative disclosures describing significant reconciling items and their effects, but tabular/quantitative disclosure is not required.

Question #4 – How is the 5% threshold for disclosure determined?

Answer

For both income taxes paid and rate reconciliation, the 5% threshold is calculated as follows:

• For income taxes paid: Any jurisdiction where net taxes paid (or received) equals or exceeds 5% of total income taxes paid (net of refunds) must be disclosed separately.

• For rate reconciliation: Any reconciling item that equals or exceeds 5% of pretax income (loss) multiplied by the applicable federal statutory tax rate must be disclosed individually.

Question #5 – What are the new requirements for disaggregating income taxes paid and how should these be presented?

Answer

All entities must disclose income taxes paid (net of refunds) broken down by federal, state, and foreign jurisdictions. Additionally, any individual jurisdiction meeting the 5% threshold must be disclosed separately. The format (tabular or narrative) is flexible, but consistency is required.

Based on a review of early adopters, it’s expected that most entities will elect to present the table of income taxes paid within the footnote as a clearer representation of these figures.

Question #6 – What other income statement disclosures are required that entities do not want to lose sight of?

Answer

Entities must also disaggregate:

• Income (loss) from continuing operations before tax by domestic and foreign sources.

• Income tax expense (benefit) by federal, state, and foreign jurisdictions. Income tax expense and taxes paid relating to foreign earnings imposed by the entity’s country of domicile are included in tax expense and taxes paid for the country of domicile.

Question #7 – What changes were made to disclosures about unrecognized tax benefits (UTBs)?

Answer

PBEs must continue to disclose a tabular rollforward of UTBs. However, the requirement to disclose positions expected to significantly increase or decrease within 12 months has been removed. Other requirements remain largely unchanged.

Question #8 – Have any disclosures been eliminated with the new ASU?

Answer

ASU 2023-09 removes the requirement to disclose the cumulative amount of each type of temporary difference when a deferred tax liability is not recognized due to exceptions for subsidiaries and joint ventures. It also eliminates the need to estimate and disclose how much unrecognized tax benefits might change over the next year as noted above in Question #7.

Question #9 – How are Companies best preparing for the looming updates & what are some best practices?

Answer

In short, Companies will want to consider proactively reviewing current disclosures and assessing early adoption while also evaluating their data and reporting systems. These Companies are focused on the following priorities:

• Data Management: Establish a master data foundation and automate tax calculations to streamline reporting.

• Consistency: Select and consistently apply a reasonable disclosure approach (tabular or narrative).

• Materiality: Applying professional judgment to determine materiality for disclosures.

• Communication: Provide detailed and useful information for management and auditors; aligning auditor & shareholder expectations with internal planning.

How Centri Can Help

Centri can support companies in navigating these disclosure requirements by collaborating with the finance team, key members of management, and external auditors to ensure a smooth transition and alignment with stakeholder expectations. Our services include:

• Guiding your company through detailed, compliant, and strategic implementation of ASU 2023-09.

• Delivering tailored training and conducting system assessments to facilitate a seamless transition.

• Crafting strategic disclosures that clearly communicate your tax positions, enhance stakeholder confidence, and evaluate opportunities for retrospective application methodologies.

At Centri, our team of Tax Advisory experts has the knowledge and expertise to help your business navigate the new requirements. Contact us to learn more.