South Carolina Flat Income Tax Cut Could Cost You More: Here’s How
After lowering income taxes last year, South Carolina residents might soon receive another tax cut. A new legislation cuts the state’s top income tax rate by more than 2% and includes future reductions if certain income limits are met.
South Carolina has one of the highest income tax rates in the Southeast. Neighboring states Alabama, Georgia, and North Carolina, and the Commonwealth of Virginia have lower rates.
While collapsing the South Carolina tax brackets into one fixed bracket would make the state more competitive with its neighbors, many South Carolinians might see their tax bills rise if the bill is signed into law.
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According to the latest report by the state Revenue and Fiscal Affairs Office (RFA), 59.4% of filers could pay more taxes in 2027.
Here’s more of what you need to know.
State income tax bill in South Carolina
Late last month, South Carolina GOP leaders released a bill, known as HB 4216, to collapse the state’s income tax brackets into one fixed rate of 3.99%. South Carolinians currently pay the following state income tax rates:
- Annual incomes than $3,560 pays 0%.
- Annual incomes between $3,560 and $17,830 pay 3%.
- Annual incomes of more than $17,830 pays 6.2%.
The relatively low income threshold for each bracket significantly narrows the tax base in South Carolina, which causes a discrepancy in taxpayer financial burdens.
For instance, according to an analysis released two years ago by the state’s Revenue and Fiscal Affairs Office, 44% of South Carolinians pay zero income taxes, and 10% of filers account for 63% of the state’s total income tax liability.
By collapsing the income brackets into one rate, South Carolina’s tax base would broaden, requiring more taxpayers to pay. However, those with incomes over $17,830 would likely be taxed less under the bill.
Also, taxpayers in the lowest income bracket might still pay no tax. That is because the proposed legislation provides a new $6,000 personal exemption for lower-income filers ($12,000 for married filing joint couples), which would have the following phaseout thresholds:
- Full exemption for those with adjusted gross income (AGI) of $30,000 or less (married filing jointly would have an exemption of $60,000 AGI or less).
- Partial exemption for filers earning between $30,000 and $40,000 AGI (married filing jointly would have an exemption phase-out between $60,000 and $80,000 AGI).
But a broader tax base isn’t the only way HB 4216 could affect your next tax bill. The bill might also change how your income is taxed — which could affect South Carolina taxpayers in all brackets.
South Carolina might get a flat income tax
South Carolina has one of the highest income tax rates in the South. States like Georgia, Alabama, and North Carolina have lower income taxes. But under the flat income tax bill, that would change.
“That makes us not only more competitive but also more attractive to new businesses and more affordable for families to call South Carolina home,” Rep. Bruce Bannister (R-Greeneville), Chair of the House Ways and Means Committee, told reporters during the bill’s unveiling.
Yet the bill might come with a caveat.
At present, South Carolinians are taxed on federal taxable income, allowing them to claim property taxes, mortgage interest, and other deductions before state taxes.
Under the new flat income tax bill, South Carolinians would be taxed on adjusted gross income (AGI). This might increase state tax for some taxpayers, as AGI is a higher before-deduction amount than federal taxable income. Most states that have an income tax use this method.
The most recent report from the state RFA office estimates how much different income groups in South Carolina might pay under a flat income tax rate of 3.99%:
- Those with income up to $10,000 might pay $98 more in taxes.
- Those between $50,000 and $75,000 might pay $560 more in taxes.
- Incomes over $1,000,000 might pay over $10,000 more in taxes.
In total, almost 1.7 million filers could pay more taxes in 2027 if the bill is passed into law. 550,000 taxpayers might see a decrease in tax liability, averaging $2,110.
However, every South Carolinian’s tax situation is unique. Some taxpayers in every bracket might see their income tax liability lower. For instance, 23,500 filers with incomes between $50,000 and $75,000 might see a decrease of $125. Tax residents between $150,000 and $200,000 could see a decrease of over $1,000.
For this reason, the state Revenue and Fiscal Affairs Office cautions against generalizing.
“The impact on individual taxpayers varies widely within each range depending on the specific tax situation of each tax filer,” writes Frank A. Rainwater, Executive Director of the Office.
‘Tax-friendly’ state savings in South Carolina
If the South Carolina bill to cut state income taxes becomes law, taxpayers might see the following tax savings:
- GOP lawmakers estimate South Carolinians could save $200 million in the year the bill is enacted.
- Future income tax cuts might be triggered if state revenue goals are met, reducing the rate until it reaches 2.49%.
In total, South Carolinians could save over $2 billion in taxes, pending future rate reductions. The latest state RFA report found many filers possibly seeing an increase in tax liability at the 3.99% rate. However, future rate reductions could decrease income taxes for almost all filers — if specific economic triggers are met.
The bill, currently in the state House Ways and Means Committee, needs to clear additional legislative hurdles, but if eventually approved, it could go into effect as early as 2026.
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