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 from your state taxable income, with no dollar cap and no age requirement.¹ The exemption covers active-duty retirement pay, Reserve and National Guard retirement pay, and benefits received by a surviving spouse of a military retiree.² If military retirement is your only income, your South Carolina income tax on it is zero.

What Counts as Military Retirement Income

The deduction applies to taxable retirement pay from a qualified military retirement plan. In practice, that is the monthly payment you receive from the Defense Finance and Accounting Service (DFAS) based on your years of uniformed service, reported to you on a 1099-R.¹

Reserve and National Guard retirement pay is treated the same as active-duty retirement pay. Payments from the Reserve Component Retirement System and the National Guard Retirement System qualify in full, without additional restrictions.² Reserve and Guard members generally begin receiving retirement pay at age 60, with an earlier start possible for those who served on qualifying active-duty orders after January 28, 2008.³

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

One boundary worth noting: VA disability compensation and Combat-Related Special Compensation (CRSC) are already exempt from federal income tax, so they never appear as taxable income on your federal return and never flow through to your South Carolina return. The state deduction has nothing to do with them.⁵

CRDP and CRSC Look Different on Your Return

If you receive both retirement pay and VA disability compensation, you may be collecting one of two concurrent-payment programs, and they appear differently at tax time.

Concurrent Retirement and Disability Pay (CRDP) is federally taxable. It is included in your retirement pay on the 1099-R, and South Carolina’s military retirement deduction covers it.
CRSC is fully exempt from federal income tax. It does not appear in your 1099-R taxable amount and never reaches your South Carolina return.⁶

Check Box 2a on your 1099-R carefully. Retirees sometimes mix the two programs up and either over-report or under-report. If CRSC is accidentally included in your taxable amount, you would be claiming a deduction for income that should not have been there to begin with.

You Have to Be a South Carolina Resident

The deduction belongs to South Carolina residents for tax purposes. Residency here means domicile: the place you consider your permanent home and intend to return to when you are away. The South Carolina Department of Revenue weighs several factors, including where you hold a driver’s license, where you 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 prove domicile. A South Carolina driver’s license alone may not settle the question if your other ties point elsewhere.⁷

Protections While Still on Active Duty

If you plan to retire in South Carolina but the military currently has you stationed elsewhere, federal law protects your domicile. Under 50 U.S.C. § 4001, a service member does not gain or lose a state domicile just because the military stationed them there.⁸ If you established South Carolina as your domicile before a PCS move, you can keep it through your service and claim the military retirement deduction once your retirement pay begins, even if you spent years stationed in other states.

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

Claiming the Deduction on Form SC1040

You take the 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 from DFAS, which shows 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 do not match your 1099-R, you are likely to trigger a notice from SCDOR.

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

Active-duty military personnel with an adjusted gross income of $89,000 or less can file both federal and state returns at no cost through several providers in the IRS Free File program.¹⁰

If You Missed the Deduction in a Past Year

You can go back and claim it. File a new SC1040 with the Amended Return box checked and include Schedule AMD. Without Schedule AMD attached, the amended return will not be processed.⁹

The refund window is generally three years from the original due date of the return. For tax year 2025, that runs through April 15, 2029.⁹ If you overlooked the deduction for several years, you can amend each year still within that window. With South Carolina’s top income tax rate at 6%, refunds on overlooked military retirement income add up quickly.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