South Carolina Moves to Lower Income Taxes Starting in 2026

South Carolina Income Tax Changes Coming in 2026: What You Need to Know

South Carolina recently passed a significant income tax reform bill (H.4216) that will lower individual income tax rates and simplify how taxes are calculated starting in the 2026 tax year. While these changes won’t affect your 2025 return, they will apply to returns filed in 2027 and beyond.

Here’s a quick overview of what’s changing and what it could mean for you.

Lower tax rates and a simpler structure

Beginning in 2026, South Carolina will move from a three-bracket system to a simplified two-rate structure:

• 1.99% on taxable income up to $30,000

• 5.21% on taxable income above $30,000 (down from the current 6.0% top rate)

This change is expected to reduce overall tax liability for many taxpayers across the state.

A new way to calculate South Carolina taxable income

The state is also changing how income is calculated:

• South Carolina will now start with federal adjusted gross income instead of federal taxable income

• Federal standard and itemized deductions will no longer apply for SC purposes

• Existing South Carolina-specific deductions remain in place

To help offset this change, a new South Carolina Income Adjusted Deduction has been introduced:

• $15,000 for single or married filing separately

• $22,500 for head of household

• $30,000 for married filing jointly or surviving spouse

These amounts may phase down at higher income levels, so the actual benefit will vary.

Other notable updates

• The South Carolina Earned Income Tax Credit (EITC) will be capped at $200

• Approximately 42.8% of taxpayers are projected to see a reduction in their tax liability under the new system

Potential for future tax reductions

The law also sets up a framework for additional rate cuts starting in 2027. If state revenue grows by at least 5% year over year, income tax rates may be reduced further, with a long-term goal of lowering the top rate to 1.99% and potentially beyond.

What this means for you

While many taxpayers may benefit from lower rates, the shift away from federal deductions and the introduction of the SCIAD means the impact will vary depending on your income level and filing status. Some taxpayers may see larger savings than others.

At Arc Advisors, we’re keeping a close eye on guidance from the South Carolina Department of Revenue and will be ready to help you understand how these changes affect your specific situation.

If you have questions or want to plan ahead for 2026, feel free to reach out to our team.