Does South Carolina Tax Pension and Retirement Income?

Yes, South Carolina does tax pension and retirement income, but state deductions wipe out the bill for many retirees. Distributions from traditional IRAs, 401(k)s, 403(b)s, 457 plans, and public and private pensions flow through from your federal taxable income and are taxed at graduated rates topping out at 6% for tax year 2026.¹ Social Security is fully excluded. Military retirement pay is fully excluded. And once you turn 65, you can subtract up to $15,000 from any kind of taxable income, which for many retirees is enough to zero out the state tax on their pension.

What South Carolina Actually Taxes

Your South Carolina return starts with your federal taxable income.¹ Whatever pension, IRA, or 401(k) distributions the IRS treats as taxable are already sitting in that number when you begin. The state then applies its own subtractions to get to South Carolina taxable income, and taxes the remainder at rates from 0% up to 6%. The top rate has come down from 7% in 2021, and a budget provision scheduled it to revert to 6.2% after June 30, 2026, so the current rate is not guaranteed to stick.

Two categories never enter your state taxable income at all. Social Security benefits are excluded regardless of your total income or filing status because South Carolina calculates gross income without the federal rule that makes part of Social Security taxable.² Railroad retirement benefits taxed federally get the same treatment.³ Because these two never appear on the state return, they don’t consume any of the deductions described below.

The Retirement Income Deduction

The original owner of a qualified retirement account can subtract a portion of their distributions each year. Before you turn 65, the cap is $3,000. In the year you reach 65, it climbs to $10,000.⁴

Qualifying income includes distributions from plans under IRC Sections 401, 403, 408, and 457, plus all federal, state, and local government pension plans.⁴ One catch: the distribution cannot be subject to the federal 10% early withdrawal penalty. Take a penalized withdrawal before 59½ and that amount does not qualify.

The cap is per person, not per account. Someone drawing from both a 401(k) and a traditional IRA still applies a single $3,000 or $10,000 ceiling to the combined total.

The Age 65 Deduction

At 65, a broader deduction opens up. Resident taxpayers 65 or older by year-end can subtract up to $15,000 from any type of South Carolina taxable income, not just retirement distributions.⁵ Wages, interest, dividends, rental income — all of it counts. A married couple filing jointly with both spouses 65 or older can claim up to $30,000 combined. If only one spouse has hit 65, the cap stays at $15,000.⁴

How the Two Deductions Stack

They don’t fully stack. The $15,000 age 65 deduction must be reduced by whatever you already claimed under the retirement income deduction, so the combined ceiling for a single taxpayer 65 or older is $15,000, not $25,000.⁴

An example. You are 67, with $8,000 in pension income and $12,000 in other taxable income. First you claim $8,000 under the retirement income deduction, below the $10,000 cap. Then your $15,000 age 65 deduction shrinks by that $8,000, leaving $7,000 to apply against the other income. Total deduction: $15,000.

If your retirement income alone is above $10,000, you claim the full $10,000, reduce the $15,000 by $10,000, and use the remaining $5,000 against other income. Same ceiling either way.

Military Retirement Is Fully Exempt

Since tax year 2022, all military retirement pay is fully excluded from South Carolina income tax. No age requirement. The exclusion covers every branch of the Armed Forces, including the National Guard and Reserves.⁶

For a living veteran, claiming the full military exclusion does reduce what remains under the retirement income deduction and the age 65 deduction. A retiree whose military pay exceeds $15,000 would have no room left under those.⁴ That usually doesn’t matter, because the military pay itself is already fully excluded.

Federal, State, and Local Government Pensions

Civilian federal retirees, state employees, and local government retirees don’t get a blanket exemption. Their pensions are treated as qualified retirement income under the standard $3,000 (under 65) or $10,000 (65 and older) caps.⁵ The age 65 deduction absorbs more of the remainder, but government retirees with larger pensions will owe state tax on the amount above these thresholds.

Roth Distributions Bypass State Tax Entirely

Qualified distributions from Roth IRAs and designated Roth 401(k) accounts are excluded from federal gross income, so they never appear in your South Carolina taxable income either. A distribution is qualified if the Roth account has been open at least five tax years and you are 59½ or older, disabled, or the distribution is made after death.⁷ For retirees with both traditional and Roth accounts, every Roth dollar spares state deduction room for the traditional withdrawals that actually need it.

Surviving Spouse Rules

A surviving spouse receiving retirement income attributable to a deceased spouse calculates the retirement income deduction using the age the deceased spouse would have been on December 31 of the current tax year, not the survivor’s own age or the age at death.⁵ If the deceased spouse would have turned 65 this year, the survivor can claim the $10,000 deduction on the inherited retirement income.

The retirement income deduction claimed on inherited income does not reduce the surviving spouse’s own $15,000 age 65 deduction.⁵ A survivor with separate retirement income of their own can claim an additional retirement deduction on that income. The military exclusion works the same way for survivors: it doesn’t reduce the general retirement or age 65 deductions, a carve-out unavailable to living veterans.⁸

If You No Longer Live in South Carolina

You worked in South Carolina and moved away? The state cannot tax your retirement distributions. Federal law at 4 U.S.C. § 114 bars any state from taxing the retirement income of a non-resident.⁹ Only your current state of residence can. This covers all qualified plan distributions, not just one employer’s pension.

How to Claim These on Your Return

The deductions are entered as subtractions from federal taxable income on Form SC1040.¹⁰ The retirement income deduction, military retirement exclusion, and age 65 deduction each appear on separate lines in the subtractions section.

Hold on to your Form 1099-R statements. They document the source, amount, and taxable portion of each distribution and are what the Department of Revenue will want if it questions a deduction. If you are claiming as a surviving spouse, keep records of the deceased spouse’s date of birth, since the deduction depends on the age they would have been.

1
South Carolina Department of Revenue. Individual Income Tax
2
South Carolina Legislature. South Carolina Code 12-6-1120 – Gross Income
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South Carolina Department of Revenue. Retirees – Lower Your Individual Income Tax Bill With These Five Tips
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South Carolina Legislature. South Carolina Code of Laws Title 12 – Section 12-6-1170
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South Carolina Department of Revenue. SC Revenue Ruling 21-13 – Age 65 and Older Deduction for Any Type Income; Retirement Income Deductions
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South Carolina Legislature. South Carolina Code 12-6-1171 – Military Retirement Income Deduction; Definitions; Surviving Spouse
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Internal Revenue Service. Retirement Topics – Designated Roth Account
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South Carolina Department of Revenue. SC Revenue Ruling 22-11
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Office of the Law Revision Counsel. 4 U.S. Code 114 – Limitation on State Income Taxation of Certain Pension Income
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South Carolina Department of Revenue. 2025 Individual Income Tax Instructions – SC1040 Instructions