South Carolina’s Remote Worker Tax Rules

In South Carolina, the tax implications for remote work arrangements are determined by the physical location where an employee performs their duties. This principle guides how the state treats income for both residents working for out-of-state companies and non-residents working for South Carolina businesses. The location of the work itself is the main factor in determining tax liability.

Tax Obligations for Remote Workers in South Carolina

An individual’s tax responsibility in South Carolina hinges on their residency status, which is based on domicile. An individual is considered a resident if they intend for South Carolina to be their permanent home, the center of their financial and family life, and the place they intend to return to when away. Part-year residents are those who move into or out of the state during the year, and their income is taxed similarly while they reside in the state.

For both full-year and part-year residents, any income earned while living and physically working within South Carolina is subject to the state’s income tax, regardless of the employer’s location. These earnings are reported on the South Carolina Individual Income Tax return, Form SC-1040. A complication can arise if the out-of-state employer’s home state also requires income tax to be withheld from your pay.

This can happen if the other state has a “convenience of the employer” rule, which treats wages as sourced to the employer’s location unless the remote work arrangement is a necessity. In such cases of dual taxation, South Carolina provides relief to its residents. To prevent being taxed twice on the same income, residents can claim a credit for taxes paid to another state on Form SC-1040TC. The allowable credit is the lesser of the tax paid to the other state or the tax that would have been paid on that income at South Carolina’s rates.

Tax Obligations for Non-Residents Working for a South Carolina Employer

The tax situation is different for individuals who are not residents of South Carolina but are employed by a company headquartered within the state. If a non-resident employee performs all of their work duties from their location outside of South Carolina, their wages are not subject to South Carolina income tax.

A tax obligation for the non-resident arises if they travel to South Carolina for work-related purposes. Any income earned while physically present in the state, even for short periods like meetings or training sessions, is taxable by South Carolina. The employee must accurately track the number of days worked inside South Carolina versus outside.

To correctly report this income, the non-resident must allocate their earnings based on the proportion of workdays spent in South Carolina. This sourced income must be reported on a South Carolina non-resident tax return if it exceeds the state’s filing threshold. If the employer withheld state taxes, the non-resident would file a return to determine their actual liability and potentially receive a refund.

Employer Responsibilities and Nexus

When an out-of-state company hires an employee who works remotely from within South Carolina, it can create a taxable presence, or “nexus,” for the business. Nexus is a connection between a taxing jurisdiction and a business substantial enough to subject the business to the state’s tax laws. Having an employee physically performing work in South Carolina is sufficient to establish this connection.

Once nexus is established, the employer is required to register with the South Carolina Department of Revenue (SCDOR) and withhold state income taxes from the employee’s wages. The employer must collect the appropriate amount of tax from each paycheck and remit it to the state according to a predetermined schedule.

The creation of nexus extends beyond payroll withholding. The business may also become liable for South Carolina’s corporate income tax and franchise tax. If the company sells taxable goods or services to customers in South Carolina, it may also be required to register for, collect, and remit sales and use tax.

An employer with a remote worker in South Carolina must also register with the South Carolina Department of Employment and Workforce (DEW). This registration is for paying state unemployment taxes, which fund benefits for eligible unemployed workers. The employer will be assigned a tax rate and is responsible for filing quarterly reports and paying the associated taxes.

Registration and Withholding Process for Employers

An out-of-state employer that has established nexus must register with the necessary state agencies. The primary registration for tax purposes is with the South Carolina Department of Revenue, which can be completed online through the MyDORWAY portal. This registration establishes the employer’s withholding tax account and provides a South Carolina Withholding File Number.

A separate registration is required for unemployment insurance with the South Carolina Department of Employment and Workforce. Employers must create an account through its State Unemployment Insurance Tax System (SUITS) portal. Upon completion, the employer receives a DEW Employer Account ID and an assigned tax rate for calculating contributions.

After registering, the employer must remit withheld income taxes on a schedule determined by the amount withheld. Payments are submitted with Form WH-1601 or electronically via MyDORWAY. Employers must also file quarterly wage reports using Form WH-1605 and an annual reconciliation using Form WH-1606 by January 31 of the following year.