ASU 2023-09 income tax disclosures

Investors asked for more information about where companies pay tax and why their effective rates differ from the statutory rate. ASU 2023-09 is the FASB's answer, and it changes the income tax note for every US GAAP reporter. This guide explains the new requirements, the effective dates and shows an example rate reconciliation.

By Awais Jameel, Chartered Accountant. Reviewed by Muhammad Bilal, Chartered Accountant. 3 minute read.

Short answer

ASU 2023-09 requires more detailed income tax disclosures under ASC 740. Public business entities must present a tabular rate reconciliation using specified categories, separately disclosing reconciling items that equal or exceed 5% of pretax income multiplied by the statutory rate, and all entities must disclose income taxes paid, net of refunds, broken down by federal, state and foreign jurisdictions, with individual jurisdictions shown where they are 5% or more of the total. It applies to public business entities for annual periods beginning after December 15, 2024, and to other entities a year later.

At a glance

Public companies
Annual periods beginning after 15 Dec 2024
Other entities
One year later
Rate reconciliation
Specified categories, in amounts and percentages
Threshold
5% of pretax income x statutory rate
Income taxes paid
By federal, state, foreign and large jurisdictions
Applied
Prospectively, retrospective allowed
ASU 2023-09 income tax disclosuresPublic companies: Annual periods beginning after 15 Dec 2024; Other entities: One year later; Rate reconciliation: Specified categories, in amounts and percentages; Threshold: 5% of pretax income x statutory rate; Income taxes paid: By federal, state, foreign and large jurisdictions; Applied: Prospectively, retrospective allowed.KEY FACTS AT A GLANCEASU 2023-09 income tax disclosuresPublic companiesAnnual periods beginningafter 15 Dec 2024Other entitiesOne year laterRate reconciliationSpecified categories, inamounts and percentagesThreshold5% of pretax income xstatutory rateIncome taxes paidBy federal, state,foreign and largejurisdictionsAppliedProspectively,retrospective allowedTax BakersASU 2023-09 income tax disclosuresPublic companies: Annual periods beginning after 15 Dec 2024; Other entities: One year later; Rate reconciliation: Specified categories, in amounts and percentages; Threshold: 5% of pretax income x statutory rate; Income taxes paid: By federal, state, foreign and large jurisdictions; Applied: Prospectively, retrospective allowed.KEY FACTS AT A GLANCEASU 2023-09 income tax disclosuresPublic companiesAnnual periods beginning after 15 Dec 2024Other entitiesOne year laterRate reconciliationSpecified categories, in amounts andpercentagesThreshold5% of pretax income x statutory rateIncome taxes paidBy federal, state, foreign and largejurisdictionsAppliedProspectively, retrospective allowedTax Bakers
Key facts at a glance, as set out in this guide.

What does ASU 2023-09 require in the rate reconciliation?

Public business entities present a table reconciling tax at the US federal statutory rate to reported income tax expense, in both amounts and percentages, using these categories:

Rate reconciliation categories under ASU 2023-09Rate reconciliation categories under ASU 2023-09CategoryShown1State and local taxes,net of federal effectAlways2Foreign tax effectsBy jurisdictionif over 5%3Changes in tax laws;cross-border tax lawsIf applicable4Tax credits; changesin valuation allowancesIf applicable5Nontaxable or nondeductibleitems; unrecognized benefitsIf applicable
Items of 5% or more of tax at the statutory rate are shown separately within each category.

Within those categories, any reconciling item that equals or exceeds 5% of the amount computed by multiplying pretax income from continuing operations by the statutory rate must be shown separately, by nature and, for foreign tax effects, by jurisdiction. Other entities give a qualitative description of the nature and effect of the specified categories and individual jurisdictions that cause a significant difference, rather than a numerical table.

An example rate reconciliation

A public company has pretax income of $10.0 million. Tax at 21% is $2.1 million, so the 5% threshold is $105,000.

$ thousandAmountPercent
US federal statutory tax2,10021.0%
State and local income taxes, net of federal effect4004.0%
Foreign tax effects: United Kingdom(150)(1.5%)
Tax credits: research credit(200)(2.0%)
Nontaxable or nondeductible items600.6%
Income tax expense2,21022.1%

State taxes, the UK effect and the research credit each exceed $105,000 and are shown separately; the nondeductible items are below the threshold but remain within their category.

All entities disclose income taxes paid, net of refunds received, broken down between federal, state and foreign, and separately for any individual jurisdiction in which income taxes paid are 5% or more of the total. If the company above paid $1.5 million federal, $0.3 million state and $0.2 million foreign, of which $0.15 million in the UK, the UK amount exceeds 5% of the $2.0 million total and is disclosed separately.

What else changed?

Entities also disclose pretax income from continuing operations split between domestic and foreign, and income tax expense split between federal, state and foreign. A small number of older disclosure requirements were removed at the same time.

When does ASU 2023-09 apply?

For public business entities, annual periods beginning after December 15, 2024, so calendar 2025 annual financial statements. For all other entities, annual periods beginning after December 15, 2025. Early adoption is permitted. The amendments are applied prospectively, with retrospective application allowed.

For many companies, the bigger task is not the presentation but the data. Tax departments that prepared the rate reconciliation from a single consolidated provision now need reconciling items by category and by jurisdiction, consistently from year to year.

How should companies prepare?

  • Map each reconciling item in the tax provision to the new categories.
  • Capture income taxes paid by jurisdiction in the payment systems, not just in the tax provision.
  • Compare with IFRS, where IAS 12 requires a rate reconciliation without prescribed categories; see IAS 12 vs ASC 740.

Build a reconciliation in the Deferred tax calculator (Excel), and see ASC 740 explained.

Need help applying the standards?

Our Chartered Accountants help finance teams and students apply US GAAP and IFRS to real transactions.

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Questions people ask

What is ASU 2023-09?

A FASB update to ASC 740 requiring more detailed income tax disclosures, mainly a categorized rate reconciliation and income taxes paid by jurisdiction.

When is ASU 2023-09 effective?

For public business entities, annual periods beginning after December 15, 2024; for other entities, annual periods beginning after December 15, 2025.

What is the 5% threshold in ASU 2023-09?

Reconciling items equal to or greater than 5% of pretax income multiplied by the statutory rate must be shown separately.

Do private companies need a numerical rate reconciliation under ASU 2023-09?

No. They give qualitative disclosure of the nature and effect of the specified categories and significant jurisdictions.

Sources

Every fee, date and rule on this page was taken from these official and primary sources.

  1. FASB Accounting Standards Codification: Topic 740, Income Taxes
  2. Financial Accounting Standards Board

Rules and fees change. If you are reading this long after October 4, 2026, confirm the figures with the source before you rely on them.

ASC 740ASC 740 income taxes explainedASC 740Uncertain tax positions under ASC 740IFRS vs US GAAPIAS 12 vs ASC 740: income tax differences

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This guide is general information. It is not tax or legal advice for your situation.