ASU 2023-09 Income Tax Disclosures: Fortune 500 First-Year Adoption
If your company filed a 10-K for a fiscal year beginning after December 15, 2024, you’ve likely already worked through the new ASU 2023-09 income tax disclosures — and discovered that the rate reconciliation is no longer optional commentary. Deloitte’s April 2026 Financial Reporting Spotlight reports the first-year adoption picture across roughly 70% of the Fortune 500 (calendar-year filers), and the data tells us which categories are driving disclosure intensity, which jurisdictions dominate, and where preparers are still figuring out best practice.
At SW Accounting & Consulting Corp, we work with public companies adopting ASU 2023-09 and refining their tax footnote architecture. This guide summarizes the standard, the first-year adoption data, and the practical drafting considerations for ongoing periods.
What does ASU 2023-09 require for income tax disclosures? 📋
ASU 2023-09 requires public business entities to annually disclose an income tax rate reconciliation — using both percentages and reporting currency amounts — broken into eight specified categories, with further disaggregation when categories meet a 5% quantitative threshold.
The eight required categories are:
| Category | Fortune 500 Adoption Rate |
|---|---|
| State and local income tax (net of federal effect) | 90% |
| Tax credits | 84% |
| Nontaxable or nondeductible items | 79% |
| Foreign tax effects | 74% |
| Changes in unrecognized tax benefits | 72% |
| Effect of cross-border tax laws | 64% |
| Changes in valuation allowances | 62% |
| Effect of changes in tax laws or rates enacted in current period | 14% |
Not every category applies to every company — the FASB explicitly noted this. The 14% adoption of “current-period tax law/rate changes” reflects that most fiscal years didn’t include such enactments; companies that did apply OBBBA changes (signed July 4, 2025) likely populated this category in particular.
What jurisdictional disaggregation does ASU 2023-09 require? 🌍
Companies must qualitatively describe the states and local jurisdictions accounting for the majority (over 50%) of state and local income tax effects, and disaggregate foreign tax effects by jurisdiction and nature using a 5% quantitative threshold.
Plus: income taxes paid is now disaggregated by foreign, domestic, and state taxes — with further jurisdiction-level disaggregation if any single jurisdiction represents 5% or more of total income taxes paid (net of refunds received).
The first-year jurisdictional landscape:
| Top State Jurisdictions | % Disclosing | Top Foreign Jurisdictions | % Disclosing |
|---|---|---|---|
| California | 58% | Canada | 33% |
| Illinois | 40% | United Kingdom | 29% |
| New York | 37% | Germany | 21% |
| New Jersey | 25% | Mexico | 19% |
California’s 58% prominence reflects two factors: high effective state tax rates and PTET-eligible structures concentrated in CA-headquartered companies. Canada’s lead among foreign jurisdictions follows from cross-border integration with US operations and Canada’s 2024 GMT (Pillar Two) implementation generating reconcilable items. Watch this list closely — the business press has begun analyzing payment-by-jurisdiction trends, and political scrutiny is likely to follow.
How does OBBBA interact with ASU 2023-09 disclosures? 💼
69% of Fortune 500 companies disclosed One Big Beautiful Bill Act (OBBBA) impacts in their 2025 annual reports — primarily in financial statements (66%) and MD&A (58%) — with most addressing material business-tax provisions of the legislation.
| Section | % of Fortune 500 Disclosing OBBBA |
|---|---|
| Financial Statements | 66% |
| MD&A | 58% |
| Risk Factors | 33% |
| Business | 11% |
OBBBA was signed July 4, 2025, with many provisions extending TCJA expiring items. For calendar-year companies, the effect typically appears as a tax-law-rate change in the rate reconciliation (the 14% category above), plus narrative discussion of business-tax provisions affecting depreciation, R&D capitalization, BEAT, GILTI, FDII, and similar items. Watch for the interaction with international Pillar Two rules, where OBBBA’s permanence of certain TCJA provisions may shift treatment of U.S. minimum tax mechanics.
What practical drafting issues are emerging? 🛠
- The 5% threshold is per-category, per-jurisdiction. A foreign jurisdiction representing 5%+ of foreign tax effects must be disaggregated; the same applies to income taxes paid. Build a decision matrix at the start of each filing period.
- Greater than 50% qualitative description for state/local. If 30 states make up 100% of state tax effects, you must qualitatively describe whichever combination represents over 50% — typically a small number of high-tax states.
- Tax credits category may need disaggregation. R&D credit, foreign tax credit, ITC, PTC, IRA credits — each may individually meet 5%. Build the underlying schedule before drafting.
- Coordination with Pillar Two. Country-by-country payment data overlaps with GMT GLoBE reporting. Ensure consistency.
- Watch interim period implications. ASU 2023-09 disclosures are annual, but interim period users may expect related metrics in quarterly footnotes — particularly around effective tax rate explanations.
(1) Reporting only percentages without dollar amounts — the standard requires both. (2) Using a single “foreign” line without jurisdiction disaggregation when materiality thresholds are met. (3) Omitting the qualitative state description. (4) Failing to update prior-period comparatives to the new presentation framework. The SEC’s first-year reviews are likely to focus on these gaps.
Frequently Asked Questions 🗂
For the authoritative ASU text, see the FASB Accounting Standards Updates page. Deloitte’s April 2026 Financial Reporting Spotlight provides the underlying first-year Fortune 500 benchmarking. The IRS guidance on OBBBA business-tax provisions is on irs.gov/newsroom.
Need help building your ASU 2023-09 disclosure schedule, drafting the rate reconciliation, or coordinating with audit on jurisdiction disaggregation? SW Accounting & Consulting Corp’s tax provision team works with public-company filers — book a consultation.
