South Carolina for retirees: Social Security untaxed, $15,000 a person at 65, and what still gets taxed

Three rules do most of the work on a South Carolina retiree’s return. Social Security and Railroad Retirement benefits are subtracted in full, at any age and any income, so the state never taxes them. Military retirement pay is subtracted in full, at any age. Everything else that comes out of a pension, IRA, 401(k), 403(b) or 457 plan gets a retirement income deduction of up to $3,000 a person before 65 and $10,000 a person at 65 and older, and then, at 65, an age deduction of up to $15,000 a person against any income at all, reduced by the retirement deduction already taken. The two together shelter $15,000 a person at 65, not $25,000. Above those lines, retirement income is taxed like wages: 1.99% on the first $30,000 of taxable income and 5.21% beyond, after the new South Carolina Income Adjusted Deduction, which for a couple starts at $30,000 and phases out between $80,000 and $190,000 of federal AGI.

The 2026 rewrite, Act 110, left every one of the retirement rules in place. What it changed for retirees is the frame around them. The return now starts from federal adjusted gross income, so the federal standard deduction, the extra deduction for age and the $6,000 federal senior deduction no longer reach the state. In their place is the SCIAD, which is larger than the old deduction for many couples but is measured against federal AGI, a figure that includes taxable Social Security and capital gains even though South Carolina goes on to subtract them. A couple whose Social Security and gains push AGI past $80,000 loses part of the SCIAD on income the state is not taxing.

Never taxed: Social Security and military retirement

Whatever part of Social Security is taxed federally, up to 85% of the benefit, is in federal AGI and comes off on the SC1040 in full. If none of it is taxed federally there is nothing to subtract and nothing to tax. Railroad Retirement benefits are treated the same way. The subtraction has no age test and no income limit. For the federal side of the question, see How Social Security is taxed.

Military retirement pay has been fully deductible since tax year 2022, for retirees of any age, with no cap. A surviving spouse may deduct the military retirement received on account of the deceased spouse’s service. Inactive National Guard and Reserve retirement is handled on a separate line. One consequence worth knowing: the military retirement deduction reduces both the regular retirement deduction and the age 65 deduction, so a 68-year-old with a $40,000 military pension and a $20,000 IRA withdrawal deducts the $40,000 and nothing of the $20,000. The military deduction is worth more; it simply uses up the other two.

The retirement income deduction

Qualified retirement income is money from plans under Internal Revenue Code sections 401, 403, 408 and 457 and from public employee retirement systems: pensions, annuities from employer plans, 401(k) and 403(b) distributions, traditional IRA withdrawals, SEP and SIMPLE IRAs, government deferred compensation. Each spouse has a deduction of his or her own: up to $3,000 a year until age 65, and up to $10,000 a year from the year the taxpayer turns 65. The deduction is per person against that person’s own retirement income, so a couple where one spouse has a $40,000 pension and the other has none deducts $10,000, not $20,000.

Three things do not qualify. Disability retirement income, Social Security and railroad retirement are excluded here because they are handled elsewhere, the first by its own deduction for the permanently and totally disabled, the others by the full subtraction above. And a distribution that drew the federal 10% early withdrawal penalty does not qualify, so a 401(k) cashed out at 45 gets no state deduction.

A surviving spouse gets something extra. Retirement income received as a surviving spouse, meaning a survivor pension or an inherited IRA from the deceased spouse, carries a separate deduction of up to $3,000 or $10,000 depending on the age the deceased would have been, on top of the survivor’s own deduction. That separate deduction, unlike the regular one, does not reduce the age 65 deduction.

The age 65 deduction, and how the two fit

Beginning in the year a resident turns 65, he or she may deduct up to $15,000 against any South Carolina income: wages, interest, dividends, rent, the taxable part of an annuity, a Roth conversion, anything. The deduction is reduced by the retirement income deduction and the military retirement deduction that person took. On a joint return where both spouses are 65 or older the ceiling is $30,000; where one spouse is 65, $15,000.

The age 65 deduction is capped at $15,000 less the retirement deductions taken, so the combined total never exceeds $15,000 a person unless military retirement is involved. The retirement deduction is limited to the retirement income actually received; the age deduction can be used against anything.

The practical reading: at 65, the first $15,000 a person of non-Social-Security income is free of South Carolina tax, however it is made up. The common mistake is to take the $10,000 and the full $15,000 both. The 2025 instructions are explicit that the second is reduced by the first, and the Revenue and Fiscal Affairs Office’s statement on Act 110 says all existing deductions were retained unchanged.

What is still taxed

Pension, IRA and 401(k) income above the deductions is taxed at the regular rates. So are interest, dividends, rent, the taxable part of a nonqualified annuity, part-time wages and unemployment. Long-term capital gains get the state’s 44% deduction, so only 56% of the net gain is taxed, an effective 2.92% at the top rate; see Capital gains for the federal side. There is no itemizing on the 2026 SC1040, so medical expenses, however large, save nothing in South Carolina. The one related item is a credit of 20% of nursing facility, in-home or community care costs, capped at $300 a year.

The federal senior deduction of $6,000 a person, in effect for 2025 through 2028, never reaches the state return. It is a below-the-line deduction, and Act 110 specifically does not adopt the section of the code it lives in. Nothing needs to be added back; it was never taken out. South Carolina’s own age break is the $15,000 deduction above, which for most retirees is worth more.

Roth conversions and large RMDs

A Roth conversion is an IRA distribution, reported on federal line 4b, and South Carolina taxes it as retirement income. It qualifies for the retirement deduction, but a retiree at 65 who already has $10,000 of pension or IRA income has used that deduction, and the age 65 deduction too once other income reaches $5,000. The conversion then lands on taxable income at 1.99% and, past $30,000 of taxable income, 5.21%. It also raises federal AGI dollar for dollar, which shrinks the SCIAD by about 27 cents per dollar inside the $80,000-to-$190,000 range for a couple. Inside that range the real state cost of a conversion is about 6.6% of the amount converted. The same arithmetic applies to a large required minimum distribution, and it is one reason a qualified charitable distribution, which never enters AGI, is worth more to a South Carolina retiree than the federal saving alone; see RMDs and giving from your IRA.

The federal side is in Roth IRAs and the backdoor Roth and IRMAA. The South Carolina lesson is about size: a conversion that fits inside the unused deductions and the 1.99% bracket costs the state almost nothing; one that runs through the SCIAD phase-out costs more than the rate suggests. Qualified Roth withdrawals later are never South Carolina income.

Relief outside the income tax

South Carolina’s property tax help for seniors is applied for at the county, not claimed on the SC1040. The homestead exemption removes the first $50,000 of fair market value of a legal residence from all property tax for an owner who, as of December 31 of the year before the tax year, is 65 or older, totally and permanently disabled, or legally blind, and has lived in South Carolina as a permanent resident for a full calendar year. The owner must hold fee simple title, a life estate or be the beneficiary of a trust that holds title. Apply once at the county auditor’s office with proof of age (a birth certificate or South Carolina driver’s license), of disability (the agency’s determination) or of blindness (a licensed ophthalmologist’s certification); there is no annual reapplication unless you move. A surviving spouse keeps the exemption if the deceased spouse qualified, the survivor takes title within nine months, lives in the home and remains unmarried.

Separately, every owner-occupied legal residence is assessed at 4% of fair market value, against 6% for other real property, and a legal residence is exempt from school operating millage (verify). Both are set up through the county assessor when you buy, and a new resident should make sure the 4% ratio was applied in the first year. A bill to raise the homestead exemption to between $75,000 and $150,000 with an age-60 tier passed the Senate in February 2026 and died in the House (verify), so the $50,000 figure stands for 2026.

Moving in, moving out

Federal law bars a state from taxing the retirement income of someone who no longer lives there, so a pension earned elsewhere and paid to a new South Carolina resident is South Carolina’s to tax, with South Carolina’s deductions. Retirement income is taxed by South Carolina for the period you were a resident: in the year of a move, Schedule NR picks up the pension and IRA payments received while living here, and the retirement and age 65 deductions are available to someone who was a resident for at least part of the year. The homestead exemption needs a full calendar year of residence first, so a retiree who arrives in 2026 applies for the 2028 tax year at the earliest. The residency rules are in Moving to South Carolina.

Withholding and estimates

A retiree whose only income is Social Security and a pension inside the deductions owes nothing and needs no withholding. Those with large IRA withdrawals, a brokerage account that throws off gains, rental income or a conversion year need to watch. Estimated payments are required when the expected South Carolina tax after withholding is $100 or more; the safe harbor is 100% of last year’s tax (110% if last year’s AGI was $150,000 or more) or 90% of this year’s. For 2026 the posted SC1040ES worksheet still prints the old 0%, 3% and 6% schedule, and the Department told taxpayers to recompute under Information Letter 26-20 instead. See Estimated payments and How South Carolina income tax works.