Does South Carolina Have an Income Tax?

South Carolina imposes a state income tax on individuals, requiring residents and certain nonresidents to report earnings and pay taxes. The system follows a progressive structure, taxing higher incomes at higher rates. Understanding these rules helps taxpayers avoid penalties and maximize deductions.

State income tax laws differ across the U.S., making it essential for anyone living or earning income in South Carolina to understand the state’s specific regulations.

Who Must File

Individuals must file a South Carolina tax return if their income meets the state’s threshold. Residents receiving wages, self-employment income, rental income, or investment earnings must determine if their total income exceeds the filing requirement set by the South Carolina Department of Revenue (SCDOR). For 2024, single filers under 65 must file if their gross income is at least $13,850, while married couples filing jointly must do so if their combined income reaches $27,700. These thresholds align with federal filing requirements, meaning those required to file a federal return typically must file a state return as well.

Nonresidents with South Carolina-sourced income may also need to file. This includes individuals who work in the state but live elsewhere, as well as those earning rental income from South Carolina properties. The state taxes nonresidents only on the income earned within South Carolina. For example, a Georgia resident commuting to an office in Charleston would owe South Carolina tax on wages earned for days worked in the state.

Individuals who had South Carolina income tax withheld but earned less than the filing requirement should still file to claim a refund. Those with untaxed income, such as self-employment earnings or retirement account distributions, must file regardless of total income. Taxpayers subject to the federal alternative minimum tax (AMT) or with unpaid use tax on out-of-state purchases must also submit a return.

How Income Tax Rates Are Calculated

South Carolina applies a progressive income tax system, with rates increasing as taxable income rises. For 2024, the state has six tax brackets, ranging from 0% to 6.5%. The first $3,200 of taxable income is taxed at 0%, while the top rate of 6.5% applies to income exceeding $16,040. These brackets are adjusted periodically for inflation to prevent “bracket creep,” where rising wages push taxpayers into higher tax rates without an actual increase in purchasing power.

Unlike the federal tax system, where each portion of income is taxed at progressively higher rates, South Carolina applies a marginal rate structure, taxing only the income within each bracket at the corresponding rate. For example, a taxpayer with $20,000 in taxable income would owe 0% on the first $3,200, with the remaining income taxed at progressively higher rates.

Taxpayers can reduce taxable income using the state’s standard deduction or itemized deductions. Certain types of income, such as Social Security benefits, are exempt, which can significantly impact tax liability. Tax credits for expenses like tuition payments or child care costs can further lower the effective tax rate.

Exemptions and Deductions

South Carolina provides several deductions to reduce taxable income. A major one is the retirement income deduction, which allows individuals receiving pensions, annuities, or other retirement income to exclude a portion from taxation. For 2024, individuals under 65 can deduct up to $3,000 of retirement income, while those 65 and older can deduct up to $10,000. This deduction applies separately to each spouse on a joint return, potentially doubling the benefit.

Taxpayers aged 65 and older can also deduct up to $15,000 from any income, not just retirement earnings. Additionally, South Carolina exempts all Social Security benefits from state taxation.

Contributions to South Carolina’s 529 college savings plan are fully deductible, with no annual contribution limit, making it one of the most generous state tax deductions for college savings.

Self-employed individuals and small business owners can deduct qualified business expenses, such as office supplies and home office costs, if they meet IRS guidelines. The state also allows a deduction for self-employed health insurance premiums.

Residency and Part-Year Filers

South Carolina categorizes taxpayers as full-year residents, part-year residents, or nonresidents, each with different filing obligations. Residency is determined by domicile—the state where an individual maintains a permanent home. If a person establishes South Carolina as their domicile with the intent to remain indefinitely, they are considered a resident for tax purposes. Individuals who leave temporarily, such as for work assignments or extended travel, generally remain South Carolina residents unless they take definitive steps to establish domicile elsewhere, such as changing their driver’s license or voter registration.

Part-year residents who move into or out of South Carolina during the tax year must file a return reporting only income earned while domiciled in the state. This requires allocating wages, business income, and capital gains based on the portion of the year spent in South Carolina. For example, someone moving from North Carolina to South Carolina in June would report earnings from January to May on a North Carolina return and income from June onward on a South Carolina return. Part-year residents can claim a credit for taxes paid to another state to prevent double taxation.

Withholding and Estimated Payments

South Carolina requires taxpayers to pay income taxes throughout the year through employer withholding or estimated tax payments. Employers must withhold state income tax from employee wages based on Form SC W-4, which allows adjustments for dependents, additional income, or deductions. Employees experiencing changes in income or personal circumstances, such as marriage or the birth of a child, should update their SC W-4 to avoid underpayment or overpayment.

Self-employed individuals, independent contractors, and those with income not subject to withholding—such as rental income, dividends, or capital gains—must make estimated tax payments. South Carolina follows the federal quarterly payment schedule, with due dates on April 15, June 15, September 15, and January 15 of the following year. Estimated payments are required if a taxpayer expects to owe at least $100 in state income tax after credits and withholding.

Failure to make sufficient estimated payments can result in penalties, calculated based on the amount underpaid and the length of time overdue. To avoid penalties, taxpayers can use the safe harbor rule, which allows them to pay either 100% of the previous year’s tax liability or 90% of the current year’s estimated tax, whichever is lower.

Penalties for Noncompliance

Failing to comply with South Carolina’s income tax laws can result in financial penalties, interest charges, and potential legal consequences. The state imposes penalties for late filing, underpayment, and failure to file. The late filing penalty is 5% of the unpaid tax per month, up to a maximum of 25%. If a return is filed on time but the tax is not paid in full, a separate late payment penalty of 0.5% per month applies, also capped at 25%.

Underpayment penalties apply when taxpayers do not withhold enough or fail to make adequate estimated payments. The state calculates this penalty using an interest rate set by the South Carolina Department of Revenue, which fluctuates based on economic conditions. Significant underpayment may lead to additional scrutiny, including audits or requests for further documentation. In cases of willful tax evasion—such as deliberately underreporting income or falsifying deductions—South Carolina can impose criminal penalties, including fines and potential imprisonment.

Taxpayers who realize they have made an error or failed to file can mitigate penalties by voluntarily filing an amended return or participating in the state’s voluntary disclosure program, which may reduce interest and penalties for those who come forward before being contacted by tax authorities.