ASU 2023-09: New Income Tax Disclosures (Topic 740)
Few footnotes get less attention than the income tax disclosure — until the rules change. The Financial Accounting Standards Board issued ASU 2023-09 to make those disclosures more transparent and more comparable across companies. Some of the new requirements reach every entity, including private companies and not-for-profits, so it is worth understanding before your next year-end close.
At SW Accounting & Consulting Corp, we help Los Angeles businesses prepare GAAP financial statements and tax provisions. Below: what ASU 2023-09 changes, the new income-taxes-paid disclosure, the expanded rate reconciliation for public companies, and the effective dates.
What is ASU 2023-09? 📘
ASU 2023-09 is a FASB Accounting Standards Update that clarifies and expands income tax disclosures under Topic 740 to increase their transparency and usefulness.
The update introduces a disclosure objective for income taxes, significantly expands the rate reconciliation for public business entities (PBEs), and adds a new income-taxes-paid disclosure for everyone. It also updates disclosures about unrecognized tax benefits and replaces the older term “public entity” in ASC 740 with “public business entity,” aligning Topic 740 with more recent standard setting.
The new income taxes paid disclosure — for every entity 🌎
All entities must annually disclose income taxes paid, net of refunds received, disaggregated by federal, state, and foreign jurisdictions — and by each individual jurisdiction where the amount is at least 5% of total income taxes paid.
This is the requirement most likely to affect private companies. The 5% threshold is measured on a cash basis: the numerator is the absolute value of net income taxes paid (or refunded) for a jurisdiction, and the denominator is the absolute value of total income taxes paid, net of refunds, across all jurisdictions. Unlike the rate reconciliation, the income-taxes-paid disclosure does not require comparative information for all years presented. And like all of U.S. GAAP, it is subject to materiality — the FASB confirmed that an entity need not separately disclose income taxes paid for an immaterial jurisdiction.
The expanded rate reconciliation — for public companies 📊
Public business entities must present a tabular rate reconciliation using specific categories, in both percentages and dollar amounts, with separate disclosure of any reconciling item at or above a 5% threshold.
For PBEs, the familiar effective-tax-rate reconciliation becomes far more structured. A reconciling item must be separately disclosed when it equals or exceeds 5% of pretax income from continuing operations multiplied by the applicable statutory income tax rate of the entity’s domicile. The result is a standardized, comparable table that shows readers where a company’s effective rate actually comes from — state taxes, foreign rate differences, credits, and similar items.
| Requirement | Who it applies to |
|---|---|
| Income taxes paid, by federal/state/foreign + any jurisdiction ≥5% of total | All entities |
| Tabular rate reconciliation (specific categories, % and $) | Public business entities |
| Updated unrecognized tax benefit disclosures | Per Topic 740 |
The income-taxes-paid disclosure is a data problem before it is a footnote problem. We help clients map cash tax payments and refunds by jurisdiction during the year — not scramble at year-end — so the 5% threshold is easy to apply and the numbers tie to the cash records.
When does ASU 2023-09 take effect? 🗓️
Public business entities apply ASU 2023-09 to annual periods beginning after December 15, 2024. All other entities apply it to annual periods beginning after December 15, 2025. Early adoption is permitted.
In practical terms, calendar-year public companies are reporting under the new rules for 2025, and calendar-year private companies and not-for-profits are up for 2026. The amendments are applied on a prospective basis, with retrospective application permitted. Because the income-taxes-paid disclosure depends on cash data gathered throughout the year, the time to build the process is before the year you must report — not after it closes.
The expanded rate reconciliation is a public-business-entity requirement, but the income-taxes-paid disclosure reaches all entities. Private companies and not-for-profits that issue GAAP financial statements should confirm whether they need to track and disclose income taxes paid by jurisdiction — starting with periods beginning after December 15, 2025.
- ASU 2023-09 expands and standardizes income tax disclosures under Topic 740.
- All entities: disclose income taxes paid (net of refunds) by federal/state/foreign and any jurisdiction ≥5% of the total.
- Public business entities: a detailed, tabular rate reconciliation in % and $.
- Effective for PBEs in FY2025; all other entities in FY2026 (early adoption permitted).
Frequently asked questions
Partly. The income-taxes-paid disclosure applies to all entities, including private companies. The expanded rate reconciliation applies only to public business entities.
An entity must separately disclose income taxes paid (net of refunds) to any individual jurisdiction where that amount is at least 5% of total income taxes paid, net of refunds, measured on a cash basis.
For public business entities, annual periods beginning after December 15, 2024; for all other entities, annual periods beginning after December 15, 2025. Early adoption is permitted.
The amendments are applied prospectively, with retrospective application to prior periods permitted.
How can SW Accounting help? 💼
At SW Accounting & Consulting Corp, we help LA-area companies get ready for ASU 2023-09 — building a process to track income taxes paid by jurisdiction, applying the 5% threshold, structuring the public-company rate reconciliation, and timing adoption so your first compliant year-end is a non-event. If you prepare GAAP financial statements, we will help you disclose the right numbers, the right way.
📩 Prepare for the new tax disclosures
Disclaimer: This article is for informational purposes only and is not accounting, tax, or legal advice. Consult a qualified professional about your specific situation. Primary source: FASB Accounting Standards Update No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures; FASB Accounting Standards Codification (ASC 740-10-50; ASC 105-10-05-6).
