Does South Carolina Tax Social Security and Retirement Income?

South Carolina does not tax Social Security

Social Security benefits under Title 2 of the Social Security Act and railroad retirement benefits are not taxed by South Carolina. Any amount that was taxed on the federal return is entered as a subtraction on the SC1040 (line o on the 2025 form) and removed from South Carolina income. There is no age requirement and no income limit. (South Carolina Department of Revenue, 2025 SC1040 Individual Income Tax Form and Instructions)

Social Security does still matter in one place from 2026. The new South Carolina Income Adjusted Deduction is reduced according to federal adjusted gross income, and federal AGI includes the taxable part of Social Security. The benefit itself is not taxed, but a larger taxable benefit can shrink the deduction that shelters other income. (South Carolina Department of Revenue, SC Information Letter #26-20: Individual Income Tax Reform (August 31, 2026))

The federal government is a separate matter. Up to 85% of a benefit can be taxed on a federal return once other income passes fixed thresholds, wherever you live. Our taxable Social Security calculator shows how much of yours is counted.

Pensions are taxable after a $3,000 or $10,000 retirement deduction; military retirement is exempt

South Carolina taxes pension income in the amount taxed federally and then allows a retirement deduction. A person under 65 can deduct up to $3,000 of qualified retirement income from their own plan; a person who is 65 or older during the tax year can deduct up to $10,000. Qualified retirement income means income from plans defined in Internal Revenue Code sections 401, 403, 408 and 457 and from all federal, state and local government retirement plans, so private pensions, government pensions, IRAs and Keogh plans are treated alike. (South Carolina Department of Revenue, 2025 SC1040 Individual Income Tax Form and Instructions)

The deduction belongs to the original owner of the plan. On a joint return the taxpayer and spouse each complete their own worksheet against their own plan income (lines p-1 and p-2 on the 2025 form), and one spouse’s unused deduction cannot be used by the other. A surviving spouse receiving a deceased spouse’s retirement income can deduct up to $3,000 or $10,000 of it, based on the age the deceased spouse would have reached, in addition to the deduction on their own plan. (South Carolina Department of Revenue, 2025 SC1040 Individual Income Tax Form and Instructions)

Since tax year 2022, all military retirement income included in South Carolina taxable income is deductible, with no cap and no age requirement. The military deduction reduces the regular retirement deduction and the age 65 deduction the same person can claim. A surviving spouse can deduct military retirement income received on account of a deceased spouse’s service. (South Carolina Department of Revenue, 2025 SC1040 Individual Income Tax Form and Instructions)

IRA and 401(k) withdrawals are taxable after the same deductions

Withdrawals from traditional IRAs, 401(k), 403(b) and 457 plans are qualified retirement income, so they share the $3,000 or $10,000 retirement deduction with any pension. A retiree of 68 with a $20,000 pension and $20,000 of IRA withdrawals deducts $10,000 in total, not $10,000 of each. Any part of a distribution that drew a federal early-withdrawal penalty does not qualify. (South Carolina Department of Revenue, 2025 SC1040 Individual Income Tax Form and Instructions)

A Roth conversion is part of federal adjusted gross income, which from 2026 is the first line of the South Carolina calculation, and South Carolina has no subtraction specific to conversions. Above $30,000 of taxable income the converted amount is taxed at 5.21%. Because a conversion raises federal AGI it can also reduce the income adjusted deduction, as described under planning points below. (South Carolina Department of Revenue, SC Information Letter #26-20: Individual Income Tax Reform (August 31, 2026))

To size a conversion against federal brackets and Medicare surcharges, see the Roth conversion calculator; for required withdrawals, the RMD calculator.

Long-term capital gains get a 44% deduction; interest and dividends do not

South Carolina deducts 44% of net capital gain, defined as net long-term capital gain for the year less any net short-term capital loss, using the federal holding period of more than one year. Capital gain distributions from funds and installment sale gains qualify if the holding period is met. With the 2026 top rate of 5.21%, the effective top rate on a long-term gain is about 2.92%. (South Carolina Department of Revenue, 2025 SC1040 Individual Income Tax Form and Instructions)

Interest and dividends, including qualified dividends, are taxed as ordinary income. Interest on U.S. government obligations is subtracted. Interest on bonds of other states and their subdivisions, which is exempt federally, is added back, and for a municipal bond fund the add-back is the share of exempt income from out-of-state obligations. (South Carolina Department of Revenue, 2025 SC1040 Individual Income Tax Form and Instructions)

The example households on this page do not take the 44% deduction, because their figures combine long-term gains with qualified dividends and only the gains would qualify. A household whose $40,000 was entirely long-term gain would deduct $17,600. (South Carolina Department of Revenue, 2025 SC1040 Individual Income Tax Form and Instructions)

For tax years beginning after 2025, South Carolina has two brackets that apply to every filing status. Taxable income below $30,000 is taxed at 1.99%. At $30,000 or more the tax is 5.21% of taxable income minus $966, which is the same as 1.99% on the first $30,000 and 5.21% on the rest. The $30,000 threshold will be adjusted for inflation each year. (South Carolina Department of Revenue, SC Information Letter #26-20: Individual Income Tax Reform (August 31, 2026))

For comparison, the top marginal rate for tax year 2025 was 6% on taxable income, with tax found from the 2025 tax tables. The new schedule does not apply to 2025 returns. (South Carolina Department of Revenue: Individual Income Tax)

South Carolina used to start from federal taxable income, which meant the federal standard deduction applied automatically. Act 110 of 2026 ends that. The state no longer adopts the federal standard deduction, itemized deductions, the federal senior deduction or the federal deductions for tips, overtime, car loan interest and qualified business income, and the calculation now begins with federal adjusted gross income. (South Carolina Department of Revenue, SC Information Letter #26-20: Individual Income Tax Reform (August 31, 2026))

In their place is the South Carolina Income Adjusted Deduction: $15,000 for single filers and married people filing separately, $22,500 for heads of household and $30,000 for joint filers and surviving spouses. It is reduced by a fraction equal to federal AGI over $40,000 divided by $55,000 for single filers, over $60,000 divided by $82,500 for heads of household, and over $80,000 divided by $110,000 for joint filers, with the reduction rounded down to the next $10. It is zero at federal AGI of $95,000, $142,500 and $190,000 respectively. (South Carolina General Assembly, Act 110 of 2026 (H. 4216): income tax rates and the South Carolina Income Adjusted Deduction)

Because the deduction depends on income, the tables above show only the two rates. In our examples the single retiree with $70,500 of federal AGI keeps $6,690 of the $15,000, the first couple with $136,750 keeps $14,530 of the $30,000, and the couple with $279,500 gets nothing. The age 65 and retirement deductions are separate and are not reduced by income. (South Carolina Department of Revenue, SC Information Letter #26-20: Individual Income Tax Reform (August 31, 2026))

Beginning in the tax year a resident turns 65, they are entitled to a deduction of $15,000 against any South Carolina income, not just retirement income. On a joint return each spouse who is 65 or older has their own $15,000 (lines q-1 and q-2 on the 2025 form). (South Carolina Department of Revenue, 2025 SC1040 Individual Income Tax Form and Instructions)

The age 65 deduction is reduced by any retirement deduction and any military retirement deduction the same person claims. A person 65 or older with $14,000 of pension income deducts $10,000 as a retirement deduction and $5,000 as an age deduction; a person with no plan income deducts the full $15,000 against interest, dividends or wages. Either way the combined ceiling is $15,000 per person, or $30,000 for a couple who are both 65. A surviving-spouse retirement deduction does not reduce it. (South Carolina Department of Revenue, 2025 SC1040 Individual Income Tax Form and Instructions)

From 2026 the filing thresholds follow the new deductions. A single person 65 or older need not file with South Carolina gross income of $30,000 or less, and a married couple who are both 65 or older need not file at $60,000 or less; with one spouse 65 or older the threshold is $45,000. (South Carolina Department of Revenue, SC Information Letter #26-20: Individual Income Tax Reform (August 31, 2026))

The same three households appear on every state page, so the figures can be compared across states. Each is a full-year resident taking the standard deduction, with no dependents. The figures are state income tax only: any county, city or school district income tax is described on this page but not added in. Pension income is from a private employer, and IRA figures are taxable withdrawals from traditional accounts. The state tax is our calculation from South Carolina's published 2026 rules; it is an illustration, not a return.

These households also owe federal income tax, which does not change with the state. The tax bracket calculator and the guide to taxes in retirement cover that side.

Property tax is assessed and collected by counties. A legal residence is assessed at 4% of fair market value, while second homes are assessed at 6%, so the same house carries an assessment half as large again when it is not the owner’s primary home. Personal vehicles are also taxed annually by the county, assessed at 6%. (South Carolina Department of Revenue: Moving to South Carolina, a tax guide for new residents)

Owner-occupied homes that receive the 4% ratio are exempt from all property tax levied for school operating purposes, though not from millage to repay school bonds. This exemption applies at any age and is separate from the homestead exemption for owners 65 and older. (South Carolina Code of Laws, Title 12, Chapter 37: sections 12-37-220(B)(47), 12-37-250 and 12-37-3140)

Increases in a property’s taxable value from countywide reassessment are capped at 15% within a five-year period. The cap does not carry over to a buyer: when an assessable transfer of interest occurs, the property is revalued at its fair market value. (South Carolina Code of Laws, Title 12, Chapter 37: sections 12-37-220(B)(47), 12-37-250 and 12-37-3140)

Tax Foundation figures drawn from Census data put South Carolina property taxes at 0.49% of owner-occupied home value in 2024, 46th among the states. (Tax Foundation, Property Taxes by State and County, 2026 (comparative figures from Census ACS data))

The statewide sales and use tax rate is 6%. Counties can add local sales taxes when voters approve them, so the rate at the register depends on the county. Individuals 85 or older are entitled to a 1% reduction in the state rate on items bought for their own use. (South Carolina Department of Revenue: Sales and Use Tax)

The Tax Foundation puts South Carolina’s average combined state and local rate at 7.49% as of January 2026, 19th highest in the country. (Tax Foundation, State and Local Sales Tax Rates, 2026 (comparative figures))

Unprepared food that can lawfully be bought with federal food benefits is exempt from the state sales tax, though the exemption in state law applies only to the state tax and not to local sales taxes. Medicine sold by prescription is exempt. (South Carolina Code of Laws, Title 12, Chapter 36: section 12-36-2120(28) and (75), sales tax exemptions)

South Carolina has no estate tax for anyone dying on or after January 1, 2005. The federal estate tax still applies to estates large enough to owe it, and the Department of Revenue’s estate tax page deals only with the estates of people who died before 2005. (South Carolina Department of Revenue: Estate Tax)

The federal estate tax applies in every state. The estate tax calculator estimates both the federal tax and any state tax.

Act 110 of 2026 (H. 4216) was signed on March 30, 2026 and applies to tax years beginning after 2025, so it first affects returns filed in 2027. It replaces three brackets with two, cuts the top rate to 5.21%, moves the starting point from federal taxable income to federal AGI, and creates the income adjusted deduction. It left the Social Security, retirement, military, age 65 and capital gain deductions in place. (South Carolina General Assembly, Act 110 of 2026 (H. 4216): income tax rates and the South Carolina Income Adjusted Deduction)

The 5.21% rate can fall again. Starting with tax year 2027 the top rate must be reduced whenever the Board of Economic Advisors projects individual income tax revenue to grow by at least 5% in the coming fiscal year, by an amount designed to return the greater of $200 million or 25% of the recurring surplus. The forecast in effect on February 15 decides each year’s rate. Reductions continue until the top rate reaches 1.99%, after which the single rate keeps falling toward zero under the same test. (South Carolina Department of Revenue, SC Information Letter #26-20: Individual Income Tax Reform (August 31, 2026))

Line references on this page are to the 2025 SC1040, the latest edition we were able to check. The 2026 form will be laid out differently because it begins with federal AGI rather than federal taxable income. The Department of Revenue has said it will provide an online calculator for the income adjusted deduction. (South Carolina Department of Revenue, SC Information Letter #26-20: Individual Income Tax Reform (August 31, 2026))

The state Earned Income Tax Credit, 125% of the federal credit, is capped at $200 a year from 2026. (South Carolina General Assembly, Act 110 of 2026 (H. 4216): income tax rates and the South Carolina Income Adjusted Deduction)

A person is a South Carolina resident, even while living elsewhere, if they intend to keep South Carolina as their permanent home, the state is the center of their financial, social and family life, and they intend to return when away. Residents are taxed on all income wherever earned unless a specific exemption applies. (South Carolina Department of Revenue, 2025 SC1040 Individual Income Tax Form and Instructions)

Someone who moves in or out during the year is a part-year resident and may choose how to file for that year only. Filing as a full-year resident means reporting all income for the year and claiming a credit for tax paid to the other state. Filing as a nonresident on Schedule NR means paying tax only on income received while a resident plus South Carolina-source income, with deductions prorated. The $15,000 age deduction is available to residents. (South Carolina Department of Revenue, 2025 SC1040 Individual Income Tax Form and Instructions)

Federal law (4 U.S.C. 114) stops a state from taxing the retirement income of a non-resident. A pension earned in New Jersey or Ohio is taxed only by South Carolina once the retiree lives there, with the retirement and age deductions applied, and a South Carolina Retirement System pension paid to someone who has moved away is not taxed by South Carolina. (4 U.S.C. 114, Limitation on State income taxation of certain pension income)