How South Carolina income tax works in 2026: federal AGI, the SCIAD, 1.99% and 5.21%

The return you file in early 2027 is a different return from the one you filed in 2026. Act 110 of 2026, signed March 30, 2026, applies to tax years beginning after December 31, 2025. The SC1040 now starts from federal adjusted gross income, line 11 of Form 1040, instead of federal taxable income. The federal standard deduction and itemized deductions no longer reach the state return; in their place is the South Carolina Income Adjusted Deduction, the SCIAD, of $15,000 single, $22,500 head of household or $30,000 on a joint return, which phases out as federal AGI rises. The three old brackets of 0%, 3% and 6% became two: 1.99% on the first $30,000 of South Carolina taxable income and 5.21% above that. Social Security, military retirement, 44% of long-term capital gains, the retirement deductions and the dependent exemption all survived. The earned income credit was capped at $200.

Not everyone pays less. The state’s Revenue and Fiscal Affairs Office estimated that 42.8% of returns pay less under the new law, 22.6% pay more, and 34.6% are unchanged. The people who pay more are mostly those who used the old 0% bracket together with large itemized deductions, and those whose income sits in the range where the SCIAD phases out. The arithmetic below shows where those lines fall.

Who files

A full-year resident reports all income, wherever it was earned, and takes a credit for income tax paid to another state on income taxed by both. Part-year residents and nonresidents with South Carolina income file the SC1040 with Schedule NR, which works out the South Carolina share; the choices a mover has are in Moving to South Carolina. Married couples use the same filing status they used federally. There is no local income tax anywhere in the state: no city, county or school district taxes wages, and the SC1040 is the only income tax return a household files here.

From 2026 the filing thresholds are keyed to the SCIAD. A resident must file when South Carolina gross income is more than $15,000 single or married filing separately, $22,500 head of household, or $30,000 married filing jointly, if under 65. At 65 or older the lines rise to $30,000 single or separate, $37,500 head of household, $45,000 joint with one spouse 65 or older, and $60,000 joint with both. Social Security is not South Carolina gross income. It is still worth filing below the line to recover withholding, and to claim the refundable tuition credit.

Where it starts: federal AGI

Line 1 of the 2026 SC1040 is federal adjusted gross income. That one change explains most of what follows. Adjusted gross income is income after the adjustments on federal Schedule 1 but before the standard deduction and every deduction that sits beneath it. Act 110 went further than just moving the starting line: it added Internal Revenue Code sections 63(b) through (g) to the list of federal provisions South Carolina does not adopt. Those sections hold the standard deduction, the itemized deductions on Schedule A, the $6,000 federal senior deduction, the new deductions for tips, overtime and car-loan interest, the charitable deduction for non-itemizers, and the 20% qualified business income deduction. None of them reach the SC1040, and none of them ever will, whatever the state’s conformity date says.

The flip side is that anything taken above the AGI line flows straight through. A deductible IRA or SEP contribution, an HSA deposit, student loan interest, half of self-employment tax and the self-employed health insurance deduction all reduce federal AGI and so reduce South Carolina tax, and they lower the AGI the SCIAD phase-out is measured against, a second saving inside the range.

Mortgage interest, charitable gifts, medical bills, property taxes and gambling losses get no South Carolina deduction from 2026, whether or not you itemize federally. The $40,400 federal SALT cap is irrelevant here. There is nothing to cap.

The subtractions

South Carolina subtracts a list of items from federal AGI before applying the SCIAD. The Revenue and Fiscal Affairs Office’s statement on the signed bill says every deduction, exemption and adjustment other than the earned income credit cap was retained, and the main ones are these.

The retirement and age 65 rules, and how they fit together, are in South Carolina for retirees. The dependent exemption, child care credit and Future Scholar deduction are in Credits and breaks for South Carolina families.

The 44% capital gain deduction. Net capital gain, meaning net long-term gain over net short-term loss, is reduced by 44% for South Carolina purposes, so only 56% of it is taxed. At the 5.21% rate that is an effective 2.92%; in the 1.99% bracket, about 1.11%. A $20,000 long-term gain costs at most $583 of state tax. Short-term gains get nothing and are taxed in full. A gain that falls in the federal 0% bracket is still taxed here.

The 3% business rate. South Carolina does not allow the federal QBI deduction, but active trade or business income from a sole proprietorship, partnership, S corporation or LLC may be taxed at a flat 3% on Form I-335 instead of the regular rates, which matters once taxable income passes the $30,000 line where 5.21% begins. A partnership or S corporation may instead elect on Form I-435 to pay the 3% at the entity level, deductible federally, with the income excluded from the owners’ returns.

The additions

For most households there are none. The ones that come up: federal bonus depreciation on a Schedule C, E or F, which South Carolina does not follow and adjusts out (verify); interest on other states’ municipal bonds, which South Carolina taxes; and the state share of pass-through items from a K-1. The old add-back of state income tax deducted on Schedule A should disappear with the move to AGI (verify).

The SCIAD

The South Carolina Income Adjusted Deduction replaces the federal standard deduction and does the work of one, with a difference: it shrinks as federal AGI rises and disappears entirely. There is no personal exemption for the taxpayer or spouse; the SCIAD is the only general deduction.

The reduction is rounded down to the next lower $10, which nudges the deduction up a few dollars. Part-year residents and nonresidents prorate the SCIAD by South Carolina AGI over federal AGI. The Department has said a SCIAD calculator will be posted on MyDORWAY.

Across the phase-out range every extra dollar of AGI costs about 27 cents of deduction, so the real marginal rate inside the range is about 6.6%, not 5.21%. A couple at $190,000 of AGI deducts nothing. The SCIAD is measured against federal AGI as a whole, including income South Carolina later subtracts, so taxable Social Security and a large capital gain count toward the phase-out even though they are not taxed.

The rates

Federal AGI, plus additions, minus subtractions, minus the SCIAD and the dependent exemptions, is South Carolina taxable income. The tax is 1.99% of the first $30,000 and 5.21% of the rest; the form writes the upper bracket as 5.21% of taxable income minus $966, which comes to the same thing. The $30,000 line is the same for every filing status. It is not a flat tax, though the law is written to become one: beginning with tax year 2027, whenever the Board of Economic Advisors forecasts individual income tax revenue growing 5% or more, the 5.21% rate drops, and keeps dropping in later years until it reaches 1.99%, after which the two brackets merge and the single rate heads toward zero. Whether the first cut triggers depends on a forecast due February 15, 2027. The bracket amounts are indexed to the chained CPI from 2027.

Above $30,000 the tax is 5.21% of taxable income less $966. Wages, interest, dividends, short-term gains, rent, unemployment and lottery winnings are all taxed at these rates; long-term gains are taxed on 56% of the gain; active trade or business income may be taxed at 3% instead.

The credits

South Carolina’s credits are small and nearly all nonrefundable. The one refundable credit a household is likely to meet is the tuition credit.

There is no state child tax credit, no renter credit, no property tax credit on the return and no charitable credit. Property tax relief in South Carolina lives on the tax bill itself, through the county: the 4% assessment ratio on an owner-occupied legal residence and, at 65, the homestead exemption on the first $50,000 of value.

Withholding and estimated payments

This is the 2026 trap. The Department published its 2026 withholding tables on November 6, 2025, before Act 110 existed, and the posted 2026 SC1040ES estimated tax worksheet still prints the 0%, 3% and 6% schedule. Act 110 directed the Department to revise the tables with the Revenue and Fiscal Affairs Office; whether a mid-year revision reached your employer’s payroll system is something to check against your pay stubs (verify). Withholding run on the old schedule can come out high or low depending on where you sit: the 0% bracket is gone, the top rate is lower, and the SCIAD may be larger or smaller than the deduction the old tables assumed. Nobody should assume the 2026 state refund will look like the 2025 one.

Estimated payments are required when you expect to owe $100 or more after withholding. They are due April 15, June 15 and September 15, 2026, and January 15, 2027, and are paid on MyDORWAY at dor.sc.gov/pay or with the SC1040ES voucher. The safe harbor is 100% of last year’s South Carolina tax, 110% if last year’s AGI was $150,000 or more, or 90% of this year’s, in four equal installments. For the September 15 payment the Department told taxpayers to read Information Letter 26-20 first and recompute rather than trust the printed worksheet. State withholding is set on the SC W-4, not the federal W-4.

How to file

The 2026 return is due April 15, 2027. Most returns are e-filed with the federal return, and the state refund arrives separately; the Department says most error-free e-filed returns are processed within about eight weeks from February 2 or the filing date, whichever is later. Some filers get a letter asking them to complete an Identity Verification Quiz on MyDORWAY first; the letter is genuine, and a text message about a South Carolina refund is not. A return filed and paid electronically by May 1 avoids penalty and interest on the balance (verify). An extension runs to October 15, 2027, but is an extension to file, not to pay; a federal extension is honored without a state form only when no South Carolina tax is due (verify). Dates and forms are in South Carolina calendar and forms.

What trips people up

• Expecting the federal standard deduction, or itemized deductions, to reduce South Carolina tax. From 2026 neither reaches the SC1040.
• Expecting the federal tips, overtime or senior deduction to help. All three are fully taxed by the state.
• Forgetting that taxable Social Security and capital gains count toward the SCIAD phase-out even though they are subtracted.
• Taking both the $10,000 retirement deduction and the full $15,000 age 65 deduction. The second is reduced by the first.
• A Future Scholar contribution nobody mentioned, because the federal return did not ask.
• A 2026 balance due nobody expected, because withholding ran on the old tables.
• Netting gambling losses against winnings. There is no itemizing, so the gross is taxed.