Is Labor Income Taxable in South Carolina?

South Carolina taxes labor income, which includes wages, salaries, and earnings from independent contracting. This guide clarifies the tax treatment of various labor income types and outlines the reporting and payment responsibilities for taxpayers in the state.

Taxation of Wages and Salaries

South Carolina imposes a state income tax on earned income, encompassing wages and salaries. The tax rate increases as an individual’s taxable income rises. For 2024, the top marginal rate is 6.2%, with a plan to decrease it to 6%.

Employers are responsible for withholding South Carolina income tax from an employee’s wages, based on the information provided on their SC W-4 form. This tax applies to South Carolina residents and non-residents who earn income from work performed within the state.

Residents are taxed on all their income, regardless of where it is earned. Non-residents are only taxed on income derived from South Carolina sources, such as compensation for services performed in the state. To avoid double taxation, South Carolina offers a credit for income taxes paid to another state on income taxed by both states.

Taxation of Independent Contractor Income

Income earned as an independent contractor, often referred to as 1099 income, is subject to South Carolina state income tax. This differs from wage income because employers do not withhold taxes from payments made to independent contractors.

Independent contractors must pay estimated taxes throughout the year. Individuals must calculate and remit their tax liability to the South Carolina Department of Revenue (SCDOR). Business expenses directly related to generating independent contractor income can be deducted, which can reduce the overall taxable income.

Key Exemptions and Deductions

South Carolina provides various exemptions and deductions that can reduce an individual’s taxable labor income. Social Security retirement benefits are not taxed by the state. Military retired pay is 100% exempt from South Carolina state income tax for tax years after 2021.

For other types of retirement income, individuals aged 65 and older can deduct up to $10,000, and those under 65 can deduct up to $3,000. South Carolina aligns with federal tax laws regarding adjustments, exemptions, and deductions.

For example, the state applies federal standard deductions, which for 2025 are $15,000 for single filers and $30,000 for married filing jointly. The “Two Wage Earner Credit” is available for married couples filing jointly where both spouses have earned income taxed in South Carolina. For tax year 2024, this credit is 0.7% of the lesser of $50,000 or the lower-earning spouse’s qualified income, with a maximum credit of $350.

Reporting and Payment Obligations

All South Carolina residents must file an annual South Carolina Individual Income Tax Return (Form SC1040) if they are required to file a federal return. Non-residents and part-year residents must also file if they earn income from South Carolina sources. Income reported on W-2 forms for employees and 1099 forms for independent contractors must be accurately reported on this return.

Employees fulfill their payment obligations through income tax withheld by their employers. Independent contractors are responsible for making estimated quarterly tax payments using SC Form 1040ES. These estimated payments are due on April 15, June 15, September 15, and January 15 of the following year.

The annual tax filing deadline for individual income tax returns is April 15. An automatic six-month extension to file is granted if a federal extension is filed and no tax is due. Forms and instructions are available through the South Carolina Department of Revenue (SCDOR) website, and returns can be filed electronically or by mail.