Is AFLAC Pre-Tax or Post-Tax? What You Need to Know

AFLAC insurance policies help cover unexpected expenses related to accidents, illness, and disability. If you have AFLAC through your employer, you may wonder whether the premiums are deducted from your paycheck on a pre-tax or post-tax basis. How these deductions are handled affects both your take-home pay and potential tax benefits.

Pre-Tax vs. Post-Tax Deductions

AFLAC premiums can be deducted from your paycheck on a pre-tax or post-tax basis, depending on your employer’s plan. A pre-tax deduction means the cost is taken out before income and payroll taxes, reducing your taxable income. This can lower what you owe in federal income tax, Social Security tax, and Medicare tax. Employers typically offer pre-tax deductions through a Section 125 cafeteria plan, which allows employees to pay for certain benefits with untaxed income.

A post-tax deduction means the premium is taken after taxes have been withheld. While this does not provide immediate tax savings, it affects how benefit payouts are treated. If you pay with post-tax dollars, any benefits you receive from a claim are generally tax-free. The IRS considers payouts from policies funded with after-tax money to be a reimbursement rather than taxable income.

IRS Criteria for Accident Insurance Premiums

The tax treatment of AFLAC premiums depends on how the IRS classifies accident and health insurance. According to IRS Publication 15-B (2024), accident insurance can be taxable or non-taxable depending on how the premiums are paid and whether the policy qualifies under an employer-sponsored plan. If accident insurance is part of a Section 125 cafeteria plan, premiums can be deducted pre-tax, provided they meet IRS Code Section 106 requirements. However, not all accident policies qualify for pre-tax treatment, particularly if they provide cash benefits directly to the policyholder rather than reimbursing medical expenses.

The IRS differentiates between policies that cover specific medical costs and those that pay a lump sum upon an accident or injury. Under IRS Code Section 104(a)(3), benefits from accident insurance policies are generally excluded from taxable income if the premiums were paid with after-tax dollars. If premiums were deducted pre-tax, any payouts may be subject to income tax, as they are considered employer-provided benefits.

Employers must also comply with IRS nondiscrimination rules when offering pre-tax accident insurance. Under Section 125 nondiscrimination testing, a cafeteria plan cannot disproportionately benefit highly compensated employees. If a plan fails these tests, the tax advantages may be revoked, forcing certain employees to treat their benefits as taxable income. Employers should review plan eligibility and contribution structures annually to ensure compliance.

Impact on Net Pay

How AFLAC premiums are deducted affects your paycheck. When premiums are taken pre-tax, your taxable wages decrease, which can lower your tax bill. For example, if you earn $3,000 per month and contribute $100 in pre-tax AFLAC premiums, only $2,900 is considered taxable income. Depending on your tax bracket, this could save you money each paycheck, adding up over a year.

Choosing post-tax deductions keeps your taxable income unchanged, meaning you do not see an immediate reduction in tax liability. However, this can have long-term effects. Since Social Security and Medicare taxes are based on taxable earnings, pre-tax deductions can slightly lower future benefits from these programs. If you are close to retirement or expect to rely on Social Security income, reducing taxable wages through pre-tax deductions could impact your benefit calculations.

Confirming with Employer or Plan Documents

Employers determine how AFLAC deductions are handled, so the tax treatment of your premiums depends on workplace policies. Some companies integrate AFLAC coverage into their benefits package, while others offer it as an optional add-on. Reviewing your benefits enrollment materials, employee handbook, or payroll deductions summary can clarify how premiums are handled. Employers must provide a Summary Plan Description (SPD) for benefit programs, which outlines whether deductions are taken pre-tax or post-tax and any relevant tax implications. If the SPD does not specify, asking your human resources or payroll department can help avoid misunderstandings.

The method of deduction can also change from year to year based on employer decisions or regulatory updates. Open enrollment periods are a good time to confirm whether AFLAC premiums will be deducted the same way in the upcoming year. Employers may adjust their benefits structure, and employees who do not review their selections carefully could experience unexpected changes in tax treatment. Additionally, state tax laws may impact how AFLAC benefits are treated, as some states have different rules for taxing insurance premiums and payouts.