AFLAC INCAFL
AFLAC INC Income Taxes Disclosure
INCOME TAXES
The components of pretax earnings for the year ended December 31, 2025 were as follows:
| (In millions) | Foreign | U.S. | Total | ||||||||||||||||||||||||||||||||
2025: | |||||||||||||||||||||||||||||||||||
| Pretax earnings | $ | 3,321 | $ | 1,212 | $ | 4,533 | |||||||||||||||||||||||||||||
The Company elected a prospective implementation for the adoption of ASU 2023-09 Income Taxes (Topic 740). See Note 1 for additional information.
The components of income tax expense (benefit) applicable to pretax earnings for the years ended December 31 were as follows:
| (In millions) | Foreign | U.S. | Total | ||||||||||||||||||||||||||||||||
2025: | |||||||||||||||||||||||||||||||||||
| Current | $ | 785 | $ | 330 | $ | 1,115 | |||||||||||||||||||||||||||||
| Deferred | 217 | (445) | (228) | ||||||||||||||||||||||||||||||||
| Total income tax expense | $ | 1,002 | $ | (115) | $ | 887 | |||||||||||||||||||||||||||||
2024: | |||||||||||||||||||||||||||||||||||
| Current | $ | 1,196 | $ | 134 | $ | 1,330 | |||||||||||||||||||||||||||||
| Deferred | 159 | (515) | (356) | ||||||||||||||||||||||||||||||||
| Total income tax expense | $ | 1,355 | $ | (381) | $ | 974 | |||||||||||||||||||||||||||||
2023: | |||||||||||||||||||||||||||||||||||
| Current | $ | 1,275 | $ | 388 | $ | 1,663 | |||||||||||||||||||||||||||||
| Deferred | (160) | (900) | (1,060) | ||||||||||||||||||||||||||||||||
| Total income tax expense | $ | 1,115 | $ | (512) | $ | 603 | |||||||||||||||||||||||||||||
The Japan income tax rate for the fiscal years 2025, 2024 and 2023 was 28.0%. The Japan income tax rate will increase to 28.9% beginning April 1, 2026. The Bermuda corporate income tax rate for the 2025 fiscal year was 15%.
Aflac Japan holds certain U.S. dollar-denominated assets in a Delaware Statutory Trust (DST). These assets are mostly comprised of various U.S. dollar-denominated commercial mortgage loans. The functional currency of the DST for U.S. tax purposes was historically the Japanese yen. In 2022, the Company requested a change in tax accounting method through the Internal Revenue Service's automatic consent procedures to change the functional currency of the DST for U.S. tax purposes to the U.S. dollar. As a result, foreign currency translation gains or losses on assets held in the DST are no longer recognized for U.S. tax purposes. The non-taxable foreign currency translation gain/loss resulting from the method change resulted in the Company recognizing an income tax expense of $23 million in 2025. The Company recognized an income tax benefit of $208 million in 2024 and $174 million in 2023.
Income tax expense in the accompanying consolidated statements of earnings varies from the amount computed by applying the expected U.S. tax rate of 21% to pretax earnings.
The principal reasons for the differences and the related tax effects for the year ended December 31, 2025 were as follows:
| (In millions) | 2025 | |||||||||||||
| Income taxes based on U.S. statutory rates | $ | 952 | 21.0 | % | ||||||||||
| Domestic federal reconciling items: | ||||||||||||||
| Tax credits | ||||||||||||||
| Solar tax credits | (54) | (1.2) | ||||||||||||
| Other tax credits | (41) | (.9) | ||||||||||||
| Nontaxable and nondeductible items | ||||||||||||||
| DST functional currency change | 23 | .5 | ||||||||||||
| Other nontaxable and nondeductible items, net | 23 | .5 | ||||||||||||
| Effects of cross-border tax laws | ||||||||||||||
| U.S. effects of foreign branch | (184) | (4.0) | ||||||||||||
| Changes in tax law | (112) | (2.5) | ||||||||||||
| Other, net | (19) | (.4) | ||||||||||||
| Foreign reconciling items: | ||||||||||||||
| Japan: | ||||||||||||||
| Japan federal rate differential | 69 | 1.5 | ||||||||||||
| Japan local rate differential | 151 | 3.3 | ||||||||||||
| Changes in tax law | 112 | 2.5 | ||||||||||||
| Other foreign tax effects, Japan | 3 | .1 | ||||||||||||
| Bermuda: | ||||||||||||||
| Bermuda corporate income tax credit | (26) | (.6) | ||||||||||||
| Bermuda rate differential | (10) | (.2) | ||||||||||||
| Income tax expense | $ | 887 | 19.6 | % | ||||||||||
For the year ended December 31, 2025, applicable U.S. state income taxes were immaterial.
The principal reasons for the differences and the related tax effects for the years ended December 31 were as follows:
| (In millions) | 2024 | 2023 | |||||||||||||||||||||
| Income taxes based on U.S. statutory rates | $ | 1,348 | $ | 1,105 | |||||||||||||||||||
| DST functional currency change | (208) | (174) | |||||||||||||||||||||
| Solar and historic tax credits, net of amortization | (164) | (348) | |||||||||||||||||||||
| Other, net | (2) | 20 | |||||||||||||||||||||
| Income tax expense | $ | 974 | $ | 603 | |||||||||||||||||||
| (In millions) | 2025 | 2024 | 2023 | ||||||||||||||||||||||||||||||||
| Statements of earnings | $ | 887 | $ | 974 | $ | 603 | |||||||||||||||||||||||||||||
| Other comprehensive income (loss): | |||||||||||||||||||||||||||||||||||
| Unrealized foreign currency translation gains (losses) during period | (6) | 160 | 140 | ||||||||||||||||||||||||||||||||
| Unrealized gains (losses) on fixed maturity securities: | |||||||||||||||||||||||||||||||||||
| Unrealized holding gains (losses) on fixed maturity securities during period | (489) | (265) | 520 | ||||||||||||||||||||||||||||||||
| Reclassification adjustment for (gains) losses on fixed maturity securities included in net earnings | (1) | (41) | (35) | ||||||||||||||||||||||||||||||||
| Unrealized gains (losses) on derivatives during period | 2 | 1 | 1 | ||||||||||||||||||||||||||||||||
| Effect of changes in discount rate assumptions during period | 1,603 | 1,214 | (122) | ||||||||||||||||||||||||||||||||
| Pension liability adjustment during period | 21 | 5 | 7 | ||||||||||||||||||||||||||||||||
| Total income tax expense (benefit) related to items of other comprehensive income (loss) | 1,130 | 1,074 | 511 | ||||||||||||||||||||||||||||||||
| Total income taxes | $ | 2,017 | $ | 2,048 | $ | 1,114 | |||||||||||||||||||||||||||||
The components of income taxes paid, net of refunds received for the year ended December 31, 2025 were as follows:
| (In millions) | 2025 | ||||||||||
| U.S. federal | $ | 104 | |||||||||
| Foreign: | |||||||||||
| Japan federal | 970 | ||||||||||
| Other foreign taxes | 91 | ||||||||||
| Total income taxes paid, net of refunds | $ | 1,165 | |||||||||
The income tax effects of the temporary differences that gave rise to deferred income tax assets and liabilities as of December 31 were as follows:
| (In millions) | 2025 | 2024 | |||||||||||||||||||||
| Deferred income tax liabilities: | |||||||||||||||||||||||
| Deferred policy acquisition costs | $ | 2,695 | $ | 2,637 | |||||||||||||||||||
| Unrealized gains and other basis differences on investments | 0 | 615 | |||||||||||||||||||||
| Foreign currency gain on Aflac Japan | 0 | 1 | |||||||||||||||||||||
| Premiums receivable | 36 | 43 | |||||||||||||||||||||
| Policy benefit reserves | 6,585 | 2,509 | |||||||||||||||||||||
| Other | 237 | 54 | |||||||||||||||||||||
| Total deferred income tax liabilities | 9,553 | 5,859 | |||||||||||||||||||||
| Deferred income tax assets: | |||||||||||||||||||||||
| Unfunded retirement benefits | 4 | 4 | |||||||||||||||||||||
| Other accrued expenses | 40 | 32 | |||||||||||||||||||||
| Policy and contract claims | 504 | 514 | |||||||||||||||||||||
| Foreign currency loss on Aflac Japan | 7 | 0 | |||||||||||||||||||||
| Deferred compensation | 0 | 31 | |||||||||||||||||||||
| Depreciation | 295 | 255 | |||||||||||||||||||||
| Anticipatory foreign tax credit | 4,966 | 3,262 | |||||||||||||||||||||
| Deferred foreign tax credit and carryforward | 1,098 | 1,428 | |||||||||||||||||||||
| Unrealized losses and other basis differences in investments | 1,360 | 0 | |||||||||||||||||||||
| Total deferred income tax assets | 8,274 | 5,526 | |||||||||||||||||||||
| Net deferred income tax (asset) liability | 1,279 | 333 | |||||||||||||||||||||
| Current income tax (asset) liability | 89 | 240 | |||||||||||||||||||||
| Total income tax liability | $ | 1,368 | $ | 573 | |||||||||||||||||||
The application of U.S. GAAP requires the Company to evaluate the recoverability of deferred tax assets and establish a valuation allowance if necessary to reduce the deferred tax asset to an amount that is more likely than not expected to be realized. The Company has determined no valuation allowance against its anticipatory foreign tax credits is necessary. The anticipatory foreign tax credit represents the foreign tax credit the Company will generate from the reversal of Japan deferred tax liabilities in the future. Deferred foreign tax credits are foreign tax credits generated in the current tax year by the Japanese life company, but are unable to be utilized until 2026 due to Japan's current tax year not closing until March 31, 2026. Based upon a review of the Company's anticipated future taxable income, and including all other available evidence, both positive and negative, the Company's management has concluded that it is more likely than not that all other deferred tax assets will be realized.
Under U.S. income tax rules, only 35% of non-life operating losses can be offset against life insurance taxable income each year. For current U.S. income tax purposes, as of December 31, 2025, there were non-life operating loss carryforwards of $26 million available to offset against future taxable income, which expire after December 31, 2040, and there were life operating loss carryforwards available to offset against future taxable income of $106 million, which do not expire. The Company has no capital loss carryforwards available to offset capital gains. The Company has a foreign tax credit carryforward of $296 million as of December 31, 2025, which expires after December 31, 2034.
The Company files federal income tax returns in the U.S., Japan, and Bermuda as well as state or prefecture income tax returns in various jurisdictions in the two countries. The 2023 U.S. federal consolidated tax return is currently under examination. There are currently no other open Federal, State, or local U.S. income tax audits. U.S. federal income tax returns for years before 2022 are no longer subject to examination. Japan corporate income tax returns for years before the tax year ended March 2023 are no longer subject to examination. Management believes it has established adequate tax liabilities and final resolution of all open audits is not expected to have a material impact on the Company's consolidated financial statements.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows for the years ended December 31:
| (In millions) | 2025 | 2024 | ||||||||||||||||||
| Balance, beginning of year | $ | 0 | $ | 1 | ||||||||||||||||
| Reductions for tax positions of prior years | 0 | (1) | ||||||||||||||||||
| Balance, end of year | $ | 0 | $ | 0 | ||||||||||||||||
Included in the balance of the liability for unrecognized tax benefits at December 31, 2025 and 2024, were no tax positions for which the ultimate deductibility is highly certain, but for which there is uncertainty about the timing of such deductibility. Because of the impact of deferred tax accounting, other than interest and penalties, the disallowance of the shorter deductibility period would not affect the annual effective tax rate, but would accelerate the payment of cash to the taxing authority to an earlier period. As of December 31, 2025, the Company did not have an accrual for permanent uncertainties and therefore did not have an effect on the annual effective rate.
The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense. The Company recognized no interest and penalties in 2025, and an immaterial amount of interest and penalties in 2024 and 2023.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 25, 2026 | Showing above |
| 2024 | Feb 26, 2025 | |
| 2023 | Feb 22, 2024 | |
| 2022 | Feb 24, 2023 | |
| 2021 | Feb 23, 2022 | |
| 2020 | Feb 23, 2021 | |
| 2019 | Feb 21, 2020 | |
| 2018 | Feb 25, 2019 | |
| 2017 | Feb 23, 2018 | |
| 2016 | Feb 24, 2017 | |
| 2015 | Feb 25, 2016 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.