SC1040TC Tax Credits and Common Errors to Avoid

South Carolina taxpayers may be eligible for various tax credits that reduce their liability or increase their refund. However, mistakes in claiming these credits can cause delays, audits, or lost savings. Understanding how to apply for them correctly ensures maximum benefits while maintaining compliance with state tax laws.

To file the SC1040TC accurately, taxpayers must identify eligible credits, gather necessary documentation, and calculate amounts correctly. Errors can lead to processing delays or adjustments by the South Carolina Department of Revenue (SCDOR), making careful preparation essential.

Credits You Can Claim

South Carolina offers tax credits that lower state income tax liability and encourage financial behaviors such as working in specific industries, making charitable donations, or investing in education. Knowing which credits apply can help maximize savings.

Income-Based Credits

Several credits assist working taxpayers, particularly those with moderate to low earnings. The South Carolina Earned Income Tax Credit (EITC) is 125% of the federal EITC for the 2023 tax year but is nonrefundable, meaning it can only reduce tax liability to zero.

Married couples filing jointly may qualify for the Two Wage Earner Credit if both spouses have earned income. This credit equals 0.7% of the lower-earning spouse’s income, with a maximum benefit of $210.

Special Tax Incentives

Certain credits promote activities that benefit the state’s economy or society. The South Carolina Tuition Tax Credit provides up to $1,500 annually for students attending eligible institutions. To qualify, students must be enrolled at least part-time in a degree-granting program at an accredited South Carolina college or university.

The Credit for Conservation Easements offers 25% of the fair market value of donated land interest, capped at $250 per acre. To qualify, the land must be donated to a government agency or a qualified conservation organization.

South Carolina also provides incentives for business investments. The Industry Partnership Fund Credit supports workforce development programs by offering a dollar-for-dollar credit to taxpayers who contribute to the fund.

Refundable Credits

Unlike most state tax credits, which only reduce what is owed, refundable credits allow taxpayers to receive money if the credit exceeds their liability.

The South Carolina Milk Credit provides dairy farmers a refundable credit when milk prices fall below a set threshold. Farmers must submit production reports and pricing data to qualify.

The Certified Historic Structure Rehabilitation Credit applies to renovations of historic buildings certified by the South Carolina Department of Archives and History. If a taxpayer’s credit exceeds their liability, the excess amount is refunded.

Required Documents

Accurate record-keeping is crucial when claiming credits on the SC1040TC. Missing or incorrect documentation can result in denied claims or processing delays.

For education-related credits like the South Carolina Tuition Tax Credit, taxpayers must have tuition statements such as IRS Form 1098-T from educational institutions. Proof of payment, such as bank statements or receipts, may also be required. If claiming the credit for a dependent, documentation proving the relationship, such as a birth certificate or custody agreement, may be necessary.

For property-related credits, official valuation reports and legal agreements are essential. Those seeking the Credit for Conservation Easements must provide an appraisal confirming the fair market value of the donated land interest, along with a recorded deed or easement agreement. Claimants for the Certified Historic Structure Rehabilitation Credit must submit documentation from the South Carolina Department of Archives and History verifying the property’s historic designation and certification of completed work.

For refundable credits tied to business activities or agriculture, detailed financial records are required. Dairy farmers claiming the South Carolina Milk Credit need production reports and pricing data. Businesses seeking workforce training or investment incentives must maintain payroll records, expense reports, and certifications validating compliance with program requirements.

Method for Calculations

Calculating tax credit amounts on the SC1040TC requires attention to percentage rates, income thresholds, and carryforward provisions. Each credit has a specific calculation method based on a percentage of qualified expenses or a set dollar limit.

Some credits are based on direct expenditures. If a credit allows taxpayers to claim 25% of eligible costs and the total qualified expense is $4,000, the resulting credit would be $1,000. However, if the credit has a cap of $750, the taxpayer cannot exceed this limit.

Certain credits must be prorated if the taxpayer qualifies for only part of the year. If a credit is based on annual expenses but the taxpayer was eligible for only six months, only half of the full amount can be claimed.

If a credit exceeds the taxpayer’s liability, some credits can be carried forward for up to five years. Tracking prior-year unused credits helps prevent expiration.

Filing with Your Return

Completing the SC1040TC correctly requires precision in documentation and form submission. Each credit must be reported in the appropriate section of the form, ensuring that amounts match supporting records. If a credit calculation involves multiple steps, all intermediate figures should be retained for potential review by the SCDOR.

When filing electronically, tax software typically transfers credit amounts from the SC1040TC to the main South Carolina individual income tax return (SC1040). Taxpayers should verify that entries align with their records. Those filing by paper must attach all supplemental schedules, especially if a credit requires additional forms, such as the TC-23 for alternative fuel property incentives. Missing schedules may result in the credit being disallowed.

Fixing Errors

Mistakes on the SC1040TC can cause processing delays, reduced refunds, or penalties if they result in underpayment. Common errors include miscalculating credit amounts, failing to include required documentation, or claiming ineligible credits. If the SCDOR finds discrepancies, they may adjust the return, issue a notice, or request additional information.

If an error is discovered after filing, taxpayers can submit an amended return using South Carolina Form SC1040X. This form allows corrections to previously reported credit amounts and requires a detailed explanation of changes. Supporting documents, such as revised calculations or missing receipts, should be included. If the mistake resulted in an overpayment, the taxpayer may receive an additional refund, while underpayments could lead to interest and penalties. Ensuring accuracy before submission reduces the likelihood of amendments and avoids unnecessary scrutiny from tax authorities.