Does South Carolina Tax Military Retirement Pay?

No. South Carolina does not tax military retirement pay. Under South Carolina Code 12-6-1171, every dollar of military retirement income is deductible on your state return, with no dollar cap and no age requirement.¹ If your only income is your retirement check from the Defense Finance and Accounting Service, your South Carolina income tax on that money is zero.²

What the Exemption Covers

The deduction applies to taxable retirement pay from a qualified military retirement plan. In everyday terms, that’s the monthly DFAS payment based on your years of uniformed service.¹

Reserve and National Guard retirement pay receive the same treatment as active-duty retirement pay, with no additional restrictions.² Reserve and Guard payments normally begin at age 60, though federal law lowers that age by three months for every 90 days of qualifying active service performed in a fiscal year after January 28, 2008.³ Once payments start, the full South Carolina deduction applies.

Surviving Spouse Benefits

A surviving spouse who receives military retirement income attributable to a deceased service member can claim the same full deduction.² That covers Survivor Benefit Plan annuities, Reserve Component Survivor Benefit Plan payments, and Retired Serviceman’s Family Protection Plan annuities.⁴ The surviving spouse must be a South Carolina resident and file the deduction on their own return.

What Falls Outside the Deduction

Two categories of military-related income sit outside 12-6-1171, but the reason is that they’re already tax-free at the federal level and never reach your state return in the first place.

VA disability compensation is exempt from federal income tax, so it doesn’t appear as taxable income on your federal return and doesn’t flow through to South Carolina. Combat-Related Special Compensation is exempt from federal income tax under 26 U.S.C. § 104 for the same reason.⁵ You don’t claim a South Carolina deduction for either, because there’s nothing to deduct.

CRDP vs. CRSC on Your 1099-R

If you receive both retirement pay and VA disability, you’re likely getting one of two concurrent payment programs, and they behave differently on your return:

Concurrent Retirement and Disability Pay (CRDP) is taxable federally, shows up in the taxable amount on your 1099-R, and the South Carolina military retirement deduction covers it.
Combat-Related Special Compensation (CRSC) is federally exempt, does not appear as taxable income on your 1099-R, and never reaches your South Carolina return.⁶

Check Box 2a on your 1099-R carefully. Retirees sometimes confuse the two programs and either over-report or under-report income.

You Have to Be a South Carolina Resident

The deduction is only available if you’re a South Carolina resident for tax purposes. Residency here means domicile: the place you consider your permanent home and intend to return to when you’re away. The South Carolina Department of Revenue looks at where you hold a driver’s license, where you’re registered to vote, where your vehicles are registered, and where you own or rent property.⁷

If you split time between South Carolina and another state, expect SCDOR to scrutinize the claim. Property tax records, lease agreements, filed South Carolina returns, and vehicle registrations all help. A South Carolina driver’s license by itself may not settle the question if your other ties point elsewhere.⁷

SCRA Protections for Active-Duty Moves

Under 50 U.S.C. § 4001, you do not gain or lose a state domicile just because the military stationed you somewhere.⁸ If you established South Carolina as your domicile before a PCS move to another state, you can keep it for tax purposes and claim the deduction once you retire, even if you spent years stationed elsewhere.

Military spouses have a parallel protection under the same statute. A spouse who is present in South Carolina only because the service member is stationed there does not automatically become a South Carolina domiciliary. A spouse who did establish South Carolina domicile can keep it through relocations. Spouses cannot simply adopt their service member’s domicile at marriage; they have to independently establish their own.⁸

How to Claim It on the SC1040

You claim the military retirement deduction on Form SC1040. Active-duty retirement pay goes on Line p. Reserve and National Guard retirees use the military retirement exclusion worksheet in the SC1040 instructions and enter the result on Line v under “Other subtractions.”²

Your starting point is the 1099-R issued by DFAS, which reports total retirement pay and the taxable portion in Box 2a. Attach a copy of every 1099 to the front of your return.⁹ If the numbers on your SC1040 don’t match your 1099-R, you’re likely to trigger a notice.

Part-year residents and nonresidents who earned military retirement income while domiciled in South Carolina should check the appropriate box on the SC1040 and attach Schedule NR.⁹

Active-duty personnel with an AGI of $89,000 or less can file federal and South Carolina returns for free through several IRS Free File providers.¹⁰

If You Missed the Deduction on a Past Return

If you filed a South Carolina return in a prior year without claiming the military retirement deduction, you can go back and fix it. File a new SC1040 with the Amended Return box checked and attach Schedule AMD. Without the Schedule AMD, the amended return will not be processed.⁹

The deadline to claim a refund is generally three years from the original due date of the return. For tax year 2025, that’s April 15, 2029.⁹ If you overlooked the deduction for multiple years, you can file amended returns for each year still inside that window. With South Carolina’s top rate at 6%, the refund on overlooked military retirement income adds up.¹¹

1
South Carolina Legislature. South Carolina Code 12-6-1171 – Military Retirement Income Deduction; Definitions; Surviving Spouse
2
South Carolina Department of Revenue. Retirees – Lower Your Individual Income Tax Bill With These Five Tips
3
Military Compensation and Financial Readiness. Reserve Retirement
4
The Official Army Benefits Website. South Carolina Military and Veterans Benefits
5
Military Compensation and Financial Readiness. Combat-Related Special Compensation Program Guidance
6
Defense Finance and Accounting Service. Comparing CRSC and CRDP
7
South Carolina Department of Revenue. A Guide to Determining a Taxpayer’s Domicile for Income Tax Purposes
8
Office of the Law Revision Counsel. 50 USC 4001 – Residence for Tax Purposes
9
South Carolina Department of Revenue. 2025 Individual Income Tax Instructions – South Carolina SC1040 Instructions
10
IRS. IRS Free File – Do Your Taxes for Free
11
South Carolina Department of Revenue. Individual Income Tax