South Carolina collects state income tax on wages, investment income, and retirement distributions
Yes, South Carolina has a state income tax. The state taxes ordinary income, capital gains, dividends, and distributions from retirement accounts. Unlike some states that exempt certain types of income, South Carolina applies its income tax broadly across most sources of money you receive.
The state income tax rate is not flat. South Carolina uses a progressive tax system with seven tax brackets that range from 0% to 7%, depending on your filing status and total income. Your actual rate depends on which bracket your income falls into, not on your income source.
South Carolina also taxes retirement account withdrawals as ordinary income. This includes distributions from traditional IRAs, 401(k)s, and similar plans. The state does not offer a special exemption or reduced rate for retirement income the way some states do.
Key Takeaways
- South Carolina taxes wages, investment income, and retirement account withdrawals at rates ranging from 0% to 7% depending on your income level and filing status.
- The state uses seven tax brackets, so your rate increases as your income moves into higher brackets, not all at once.
- Retirement distributions from traditional IRAs and 401(k)s are taxed as ordinary income with no special exemption or reduced rate.
- Social Security benefits are not taxed by South Carolina, even though they count toward your total income for federal purposes.
- You report South Carolina income tax on Form SC 1040, which you file separately from your federal return.
How South Carolina's seven tax brackets work
South Carolina's income tax brackets change each year because they are adjusted for inflation. The brackets explore differently based on whether you file as single, married filing jointly, married filing separately, or head of household. Your tax is calculated by explore the rate for each bracket to the portion of your income that falls within it.
For example, if you are single and your income falls partly in the 3% bracket and partly in the 5% bracket, you pay 3% on the income in the first bracket and 5% on the income in the second bracket. You do not pay the higher rate on all your income. The state publishes updated bracket amounts each year on the South Carolina Department of Revenue website.
Because brackets adjust annually, your effective tax rate (the percentage of your total income that goes to state tax) changes from year to year even if your income stays the same. This is why comparing your state tax bill across multiple years requires looking at the specific brackets in effect for each year.
What types of income South Carolina taxes
South Carolina taxes wages and salaries, self-employment income, interest, dividends, capital gains, rental income, and distributions from retirement accounts. The state does not distinguish between long-term and short-term capital gains — both are taxed at your ordinary income rate.
Retirement account distributions are treated as ordinary income. This includes withdrawals from traditional IRAs, SEP IRAs, straightforward IRAs, 401(k)s, 403(b)s, and pension plans. Roth IRA withdrawals of contributions (the money you put in) are not taxed, but earnings withdrawn before age 59½ are taxed as ordinary income unless an exception applies.
Social Security benefits are not taxed by South Carolina. Even though the federal government may tax part of your Social Security depending on your total income, the state does not include Social Security in its taxable income calculation. Military retirement pay is also exempt from South Carolina state income tax.
Retirement income and state tax considerations
If you are planning to retire in South Carolina or move there in retirement, the state's treatment of retirement income matters for your tax bill. Because traditional retirement account withdrawals are taxed as ordinary income, your state tax rate depends on how much you withdraw each year, not on the source of the money.
Someone withdrawing $40,000 per year from a 401(k) will pay the same South Carolina state income tax as someone earning $40,000 in wages. The state does not offer a retirement income exclusion or a reduced rate for people over a certain age. This is different from states like Georgia or North Carolina, which do offer some retirement income exclusions.
If you receive a pension, the same rule applies: pension income is taxed as ordinary income at your regular rate. Military pensions are the exception — they are fully exempt from South Carolina state income tax.
How to file South Carolina state income tax
You file South Carolina state income tax on Form SC 1040, which is separate from your federal Form 1040. You must file a state return if your income exceeds the filing threshold for your filing status. The threshold amounts change each year and are published by the South Carolina Department of Revenue.
You can file on paper by mailing your return to the South Carolina Department of Revenue, or you can file electronically through the state's online system or through tax software that supports South Carolina returns. If you owe money, you can pay by check, electronic funds withdrawal, or credit card (though credit card payments include a processing fee).
If you are due a refund, the state processes returns and issues refunds on a rolling basis. The timeline depends on whether you file on paper or electronically and whether your return is selected for review. The Department of Revenue website shows current processing times.
Deductions and credits available in South Carolina
South Carolina allows a standard deduction that varies by filing status and age. For 2024, the standard deduction ranges from $3,200 for single filers under 65 to $4,050 for married couples filing jointly where at least one spouse is 65 or older. These amounts increase each year with inflation.
The state also offers a dependent exemption, a child and dependent care credit, an earned income credit (which mirrors the federal credit), and a property tax relief credit for certain low-income taxpayers. You claim these on your state return, separate from any federal credits you claim.
South Carolina does not allow you to deduct federal income tax paid, and you cannot deduct state income tax paid to other states if you worked in multiple states during the year. The state does tax income earned in other states if you are a South Carolina resident, though you may be able to claim a credit for taxes paid to another state to avoid double taxation.
Multi-state income and how South Carolina taxes it
If you worked in more than one state during the tax year, South Carolina taxes your income from all sources if you are a resident of the state. However, you may be able to claim a credit on your South Carolina return for income tax you paid to another state, which reduces your South Carolina tax liability.
The credit is limited to the lesser of the tax you paid to the other state or the South Carolina tax on that income. This prevents you from paying tax twice on the same income, but it does not create a refund if the other state's tax was higher than South Carolina's would have been.
If you moved to South Carolina partway through the year, you may be a part-year resident. Part-year residents report income earned before and after the move separately and may have different filing requirements depending on where they lived and worked during each part of the year.
Frequently Asked Questions
Does South Carolina tax retirement income differently than wages?
No. South Carolina taxes retirement account withdrawals, pensions, and wages all as ordinary income at the same rates. The only exception is military retirement pay, which is fully exempt. Social Security is also exempt from South Carolina state tax.
What is the highest state income tax rate in South Carolina?
The highest marginal rate is 7%, which applies to the highest income bracket. Your effective rate (total tax divided by total income) will be lower because you pay lower rates on income in the lower brackets. The exact income threshold for the 7% bracket changes each year with inflation.
Can I deduct federal income tax from my South Carolina state tax?
No. South Carolina does not allow a deduction for federal income tax paid. You can only deduct the standard deduction for your filing status, plus any applicable exemptions and credits.
If I move out of South Carolina, do I still owe state tax on income I earned while living there?
Yes. You owe South Carolina state tax on income you earned while you were a resident, even if you move out during or after the tax year. You file as a part-year resident and report only the income earned during the months you lived in South Carolina.
Are Roth IRA withdrawals taxed by South Carolina?
Withdrawals of contributions (the money you put in) are not taxed. Withdrawals of earnings are taxed as ordinary income unless you meet the conditions for a may have access to distribution (age 59½ and account open at least five years). Nonqualified earnings withdrawals are taxed at your ordinary rate.