Yes, South Carolina does tax pensions, but generous deductions mean many retirees owe little or nothing on that income. Residents under 65 can subtract up to $3,000 of qualified retirement income each year. At 65 and older, that deduction rises to $10,000 and stacks with a separate senior deduction that brings the combined shelter up to $15,000. Social Security is fully exempt, and military retirement pay is fully exempt at any age.
How Pension Income Enters Your State Return
South Carolina starts with your federal adjusted gross income.1South Carolina Legislature. South Carolina Code 12-6-1110 – Modifications of Gross, Adjusted Gross, and Taxable Income Calculated Under Internal Revenue Code If a pension payment, IRA distribution, or 401(k) withdrawal is taxable federally, it lands on your state return too. The state then applies its own subtractions — Social Security, the retirement income deduction, the senior deduction, and the military exemption — before calculating what you actually owe.
What South Carolina Never Taxes
Two categories of retirement income are removed before any deduction math begins.
Social Security. South Carolina does not tax Social Security benefits, regardless of amount.2South Carolina Legislature. South Carolina Code 12-6-1120 – Gross Income Railroad retirement benefits that would be taxable federally get the same treatment.3South Carolina Department of Revenue. IIT FAQs
Military retirement pay. Retirement pay from the Army, Navy, Air Force, Marine Corps, Space Force, Coast Guard, National Guard, and Reserves is fully exempt with no dollar cap and no age requirement.4South Carolina Legislature. South Carolina Code 12-6-1171 – Military Retirement Income Deduction5South Carolina Department of Revenue. Retirees – Lower Your Individual Income Tax Bill With These Five Tips Surviving spouses receiving a deceased service member’s benefits can claim it too. The military exemption sits alongside the other deductions, so a veteran with both a service pension and a private pension applies the military exemption to service pay and still uses the age-based retirement deduction on the rest.
The Retirement Income Deduction Under Age 65
If you are under 65, you can deduct up to $3,000 of qualified retirement income each year.6South Carolina Legislature. South Carolina Code 12-6-1170 – Retirement Income Deduction From Taxable Income for Individual Qualified income includes distributions from traditional IRAs, 401(k), 403(b), and 457 plans, and both private and public pensions, including federal, state, and local government pensions. The distribution cannot be subject to a federal early-withdrawal penalty.
If your qualifying retirement income is less than $3,000, the deduction is limited to what you actually received. You must be the original account owner, though surviving spouses have a separate pathway to claim it on inherited retirement benefits.
The Retirement Income Deduction at 65 and Older
In the tax year you turn 65, the deduction jumps to $10,000. You do not have to wait until the following year.6South Carolina Legislature. South Carolina Code 12-6-1170 – Retirement Income Deduction From Taxable Income for Individual Both age tiers come from the same statute, so you claim one or the other based on your age during the year, never both.
The Additional Senior Deduction
At 65 and older, a separate deduction of up to $15,000 applies against any South Carolina taxable income — wages from part-time work, rental income, investment earnings, or anything else.7South Carolina Department of Revenue. Age 65 and Older Deduction General and Military Retirement Deductions and Earned Income Offset The catch is that this $15,000 is reduced dollar-for-dollar by whatever you claim under the retirement income deduction.
A single filer age 65 who claims the full $10,000 retirement income deduction has $5,000 left available under the senior deduction, for a combined $15,000. Claim less on the retirement side, and more remains on the senior side, but the single-filer ceiling stays at $15,000 combined.
Married Couples Filing Jointly
On a joint return, the senior deduction cap is $15,000 if one spouse is 65 or older and $30,000 if both are.6South Carolina Legislature. South Carolina Code 12-6-1170 – Retirement Income Deduction From Taxable Income for Individual Each spouse can also separately claim the $10,000 retirement income deduction against their own qualifying income, with those amounts reducing the senior deduction as described above.
If Your Pension Was Earned in Another State
South Carolina taxes retirement income based on where you live when you receive it, not where you worked when you earned it. A pension from an out-of-state employer is taxable here once you become a South Carolina resident.3South Carolina Department of Revenue. IIT FAQs The same $3,000, $10,000, and $15,000 deductions apply.
If you already paid another state’s income tax on employee contributions to that plan, South Carolina offers a credit to offset the double taxation.8South Carolina Legislature. South Carolina Code 12-6-3500 – Retirement Plan Credit The credit is spread over your life expectancy rather than taken all at once, and it cannot exceed what you would have owed on those same contributions at South Carolina rates.
What Gets Taxed and at What Rate
Whatever pension income remains after the exemptions and deductions runs through South Carolina’s graduated brackets, which top out at 6%.9South Carolina Legislature. South Carolina Code of Laws – Title 12 – Chapter 6 – Taxation For 2026, the inflation-indexed thresholds are:
- $0 to $3,640: 0%
- $3,641 to $18,230: 3% on the amount over $3,640
- Over $18,230: 6% on the amount over $18,230, plus $437.70
Only income within each range is taxed at that range’s rate. A single retiree age 65 with $40,000 in total income and $15,000 in combined deductions pays state tax on $25,000, and the first $3,640 of that comes out tax-free.
Paying the Tax Through the Year
If you expect to owe $100 or more when you file, South Carolina requires quarterly estimated tax payments.10South Carolina Department of Revenue. 2025 SC1040 Individual Income Tax Form and Instructions There is no age exemption. You can avoid an underpayment penalty by paying at least 90% of the current year’s liability through quarterly payments, or 100% of the prior year’s liability (110% if your prior-year AGI topped $150,000). Payments are due April 15, June 15, September 15, and January 15 of the following year.
The simpler route for many retirees is asking the pension plan administrator to withhold South Carolina income tax directly from each distribution. That keeps you current without having to write four checks a year.