Does South Carolina Tax Pension and Retirement Income?

South Carolina does tax pension and retirement income, but a stack of state deductions means many retirees pay little or nothing. Social Security benefits are fully exempt. Military retirement pay is fully exempt at any age. Everyone else can subtract up to $10,000 a year in qualified retirement income once they turn 65, plus up to $15,000 in total income under a separate age-based deduction. Whatever remains is taxed on your federal taxable income using South Carolina’s graduated rates, which top out at 6% for tax year 2026.¹

What Counts as Taxable Retirement Income

South Carolina uses your federal taxable income as the starting point for the state return.¹ That means distributions from traditional IRAs, 401(k)s, 403(b)s, 457 deferred compensation plans, and both public and private pensions flow in automatically as taxable income. The state then lets you subtract specific amounts to get to South Carolina taxable income, and taxes the remainder.

Rates for 2026 range from 0% up to a 6% top marginal rate.¹ A budget provision scheduled the rate to revert to 6.2% after June 30, 2026, so watch for legislative updates that may extend the lower rate.

Social Security Is Fully Exempt

South Carolina excludes Social Security benefits from gross income entirely, no matter how much other income you have or how you file.² Railroad retirement benefits taxed federally get the same complete pass.³ Because this income never enters your South Carolina taxable income, it doesn’t eat into any of the deductions below.

The Retirement Income Deduction

If you are the original owner of a qualified retirement account, you can subtract part of your distributions each year. Before age 65, the cap is $3,000. Starting the year you turn 65, it rises to $10,000.⁴

Qualifying income includes distributions from IRC Section 401 plans (401(k) and similar), 403(b) plans, IRAs under Section 408, 457 deferred compensation, and all federal, state, and local government pensions.⁴ One catch: distributions subject to the federal 10% early withdrawal penalty do not qualify. If you pull money out before 59½ and get hit with that penalty, that amount is not eligible.

The cap is per person across all qualifying accounts combined, not per account.

The Age 65 Deduction

At 65, a broader deduction opens up. Resident taxpayers who turn 65 by the end of the tax year can subtract up to $15,000 from any kind of South Carolina taxable income — wages, interest, dividends, rental income, and pension distributions all count.⁵ Married couples filing jointly where both spouses are 65 or older can claim up to $30,000 combined; if only one spouse has reached 65, the ceiling is $15,000.⁴

How the Two Deductions Stack

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

An example. You are 67, you receive $8,000 in pension income, and you have $12,000 in other taxable income. You claim $8,000 under the retirement income deduction (below the $10,000 cap). Your $15,000 age 65 deduction then shrinks by that $8,000, leaving $7,000 to apply against your remaining $12,000 of other income. Total deductions: $15,000.

If your retirement income alone exceeds $10,000, you claim the full $10,000 retirement deduction, drop the age 65 deduction to $5,000, and apply that against other income. Same $15,000 ceiling.

Military Retirement Pay

Starting with tax year 2022, South Carolina excludes all military retirement pay from state income tax regardless of your age. The exclusion covers retirement from every branch, including the National Guard and Reserves.⁶

For a living veteran, claiming the full military exclusion does reduce the amount available under the retirement income deduction and the age 65 deduction. A veteran whose military pay exceeds $15,000 has nothing left under those other deductions, which usually doesn’t matter because the military income itself is already fully out.⁴

Civilian Government Pensions

Retired federal civilian employees, state employees, and local government retirees do not get a blanket exemption. Their pensions are treated as qualified retirement income under the standard caps: $3,000 before 65, $10,000 after.⁵ The $15,000 age 65 deduction absorbs more of the balance, but a larger government pension will leave some income taxable in South Carolina.

Roth Accounts

Qualified distributions from Roth IRAs and designated Roth 401(k) accounts are excluded from federal gross income, so they never show up on your South Carolina return either. A distribution is qualified if the Roth has been open at least five tax years and you are 59½ or older, disabled, or taking it after the account owner’s death.⁷ Every Roth dollar you withdraw skips both federal and state tax without using up any portion of your limited state deductions.

Required Minimum Distributions

Federal law requires you to start drawing down traditional IRAs, 401(k)s, and similar accounts at age 73. Your first distribution is due by April 1 of the year after you turn 73, and every subsequent one by December 31.⁸ If you delay that first RMD to April, you take two in one calendar year, which can push your South Carolina taxable income well past what the deductions will cover.

For retirees with sizable tax-deferred balances, RMDs in the mid-70s and beyond routinely run higher than the combined $15,000 ceiling, and the excess is taxed at South Carolina’s graduated rates.

Qualified Charitable Distributions

If you are 70½ or older, a qualified charitable distribution lets you send money straight from your IRA to a qualifying charity without the distribution counting as federal taxable income.⁹ The 2026 cap is $111,000.¹⁰ A QCD also satisfies your RMD for the year. Since the money never appears on your federal return, it never flows through to South Carolina, which is one of the cleanest ways to keep state tax low once RMDs push past your deductions.

Surviving Spouse Rules

A surviving spouse receiving retirement income attributable to a deceased spouse calculates the retirement income deduction as if the deceased spouse were still alive, using the age that spouse would have reached by December 31 of the current tax year.⁵ If the deceased spouse would have been 65 or older this year, the surviving spouse can claim the $10,000 cap on the inherited retirement income.

Importantly, a retirement income deduction claimed as a surviving spouse does not reduce the survivor’s own $15,000 age 65 deduction, and the survivor can claim a separate retirement income deduction against any retirement income of their own.⁵ For a surviving spouse of a deceased veteran, the military retirement exclusion likewise does not reduce the general retirement income or age 65 deductions, a carve-out the veteran does not have while living.¹¹

If You No Longer Live in South Carolina

If you earned your pension in South Carolina but moved away, the state cannot tax those distributions. Federal law at 4 U.S.C. § 114 bars any state from taxing the retirement income of someone who is not a resident, so only your current state of residence can reach that money.¹²

Claiming the Deductions on Your Return

All of these subtractions are claimed on the South Carolina Individual Income Tax Return, Form SC1040.¹³ The retirement income deduction, military retirement exclusion, and age 65 deduction each have their own line in the subtractions section. Keep your Form 1099-R statements from every plan; they document the source and taxable amount of each distribution. If you’re claiming a surviving spouse deduction, hold on to records of the deceased spouse’s date of birth, since the deduction amount hinges on the age they would have reached.

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
4
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
7
Internal Revenue Service. Retirement Topics – Designated Roth Account
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Internal Revenue Service. Retirement Topics – Required Minimum Distributions (RMDs)
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Internal Revenue Service. Seniors Can Reduce Their Tax Burden by Donating to Charity Through Their IRA
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Internal Revenue Service. 2026 Amounts Relating to Retirement Plans and IRAs, as Adjusted for Changes in Cost-of-Living
11
South Carolina Department of Revenue. SC Revenue Ruling 22-11
12
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