The Financial Accounting Standards Board (FASB) green lit an income tax disclosure proposal that will bring more transparency to the taxes paid by companies. Starting as early as 2025, annual reports will now include a breakdown of year-to-date income tax payments, net refunds, and specify whether these were made to state, federal, or foreign taxing authorities.
By Lauren Staub and Ramona Gross
The Financial Accounting Standards Board (FASB) approved an income tax disclosure proposal that will require companies to tell the public more about taxes paid starting as early as 2025. Long debated, the Board approved new disclosures requiring:
- Annual reports to include year-to-date income tax paid, net refunds received, to state, federal, and foreign taxing authorities
- Companies that pay at least 5% of tax payments to a country or jurisdiction must list the country or state and disclose the amount of tax paid
U.S. companies currently are required to provide financial statements that include cash taxes paid in total but are not required to list country or state jurisdiction, according to Bloomberg. These disclosure additions will be published by year-end and are intended to itemize some taxes paid that which was only provided as a lump sum in the past.
Effective dates
Public companies will be required to adjust their companies’ 10-K annual reports in 2025, and interim reporting starts in the first quarter of 2026. Private companies will start to comply with their annual reports in 2026 and interim reports in 2027. Reach out to your TaxOps advisor with any questions or concerns regarding the new disclosures and the impact on ASC 740 compliance.
Takeaway
These new requirements will add another layer of transparency for users of financial statements, giving them insight into the impact of cash taxes paid and received, by jurisdiction, during the reporting period. Generally, this information is already gathered for use in the income tax provision calculation, so summarizing the additional detail in the financial statements shouldn’t too much of a headache for companies. Reach out to your TaxOps Advisor for additional guidance.
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