How Are Taxes Calculated in South Carolina?

Understanding how taxes are calculated in South Carolina is essential for residents and businesses to comply with state regulations and optimize their financial responsibilities. The state’s tax system presents unique challenges and opportunities distinct from federal guidelines. This article explores key components such as taxable income, specific adjustments, credits, filing status, residency considerations, and options for filing extensions or payment arrangements.

SC Taxable Income

South Carolina taxable income is based on federal adjusted gross income (AGI) with specific state modifications. The state employs a progressive tax rate structure, ranging from 0% to 7% as of 2024. These rates apply to income brackets adjusted annually for inflation. For instance, the highest rate of 7% applies to income exceeding $16,040 for single filers and $32,080 for joint filers.

Taxpayers must account for South Carolina-specific adjustments, including subtractions for exempt income like Social Security benefits and military retirement pay, and additions for deductions not recognized by the state, such as state and local tax deductions exceeding $10,000.

Deductions play a key role in determining taxable income. Taxpayers can choose between the standard deduction, aligned with federal amounts, or itemized deductions, which include medical expenses, mortgage interest, and charitable contributions. Selecting the most beneficial option is crucial for reducing tax liabilities.

SC-Specific Adjustments

South Carolina adjustments to federal AGI determine state taxable income. These adjustments include subtractions, additions, and deductions, each affecting tax calculations.

Subtractions

Subtractions exclude certain income types from state taxable income. Social Security benefits are fully exempt, as is military retirement pay, reflecting the state’s support for veterans. Contributions to South Carolina’s Future Scholar 529 College Savings Plan are also subtracted, with limits of $10,000 for single filers and $20,000 for joint filers. Accurate documentation ensures compliance and maximizes benefits.

Additions

Additions require including income or deductions not recognized by the state. For example, state and local tax (SALT) deductions exceeding the $10,000 federal cap must be added back. Similarly, interest income from out-of-state municipal bonds is included. Accurate reporting of these additions is essential to avoid underreporting income.

Deductions

Deductions allow taxpayers to reduce taxable income through the standard deduction or itemized deductions. The standard deduction matches federal amounts, $13,850 for single filers and $27,700 for joint filers in 2024. Itemized deductions include medical expenses exceeding 7.5% of AGI, mortgage interest, and charitable contributions. Contributions to South Carolina’s retirement system are also deductible. Proper documentation is key for accuracy.

Credits Available

Tax credits in South Carolina reduce the tax owed and are a powerful tool for tax planning. The South Carolina Earned Income Tax Credit (EITC) benefits low- to moderate-income working individuals and families. As of 2024, the state EITC equals 125% of the federal credit. The Solar Energy Tax Credit offers a 25% credit on eligible solar installation costs, capped at $3,500 per system or 50% of the taxpayer’s tax liability.

Businesses can access credits like the Job Tax Credit, which incentivizes job creation. This credit ranges from $1,500 to $25,000 per job, depending on the county’s economic standing. The Research and Development Tax Credit allows up to 5% of qualified research expenses to be claimed.

Filing Status

Choosing the correct filing status is essential, as it impacts tax rates and deductions. South Carolina recognizes single, married filing jointly, married filing separately, head of household, and qualifying widow(er) with dependent child statuses.

Married couples should assess whether to file jointly or separately. Joint filing typically results in lower tax rates and higher deductions, but separate filing may be advantageous if one spouse has significant medical expenses or miscellaneous deductions. Unmarried individuals who provide a home for a qualifying person may file as head of household for a more favorable tax rate.

Residency and Part-Year Filers

Residency status determines tax obligations. Residents are taxed on all income, while nonresidents are only taxed on South Carolina-sourced income. Part-year residents are taxed on income earned during their residency and any South Carolina-derived income while nonresidents.

Part-year residents must prorate deductions and credits based on their time in the state. Nonresidents file a South Carolina Nonresident Tax Return (Form SC1040NR) to report South Carolina-sourced income, such as wages or rental income.

Residency audits consider factors like primary home location, voter registration, and driver’s license issuance. Clear documentation is crucial to substantiate residency claims, particularly for those asserting nonresident or part-year resident status.

Filing Extensions and Payment Arrangements

South Carolina offers filing extensions and payment arrangements for taxpayers unable to meet the standard deadline. The state’s tax filing deadline aligns with the federal deadline of April 15. Taxpayers can request a six-month extension to file their return, but this does not extend the time to pay taxes owed.

To request an extension, taxpayers must file South Carolina Form SC4868 or submit a copy of their federal extension request (Form 4868) to the South Carolina Department of Revenue (SCDOR). Estimated taxes owed must still be paid by the original deadline to avoid penalties and interest.

For taxpayers unable to pay their full tax liability by the deadline, South Carolina offers installment agreements through the SCDOR. These arrangements require a minimum monthly payment and charge interest on the balance, calculated using the federal short-term rate plus 3%. Timely communication with the SCDOR and consistent payments help taxpayers avoid severe collection actions.