Yes, South Carolina does tax pension income, but most retirees pay far less than the rate tables suggest because the state layers two age-based deductions on top of a full exemption for military pensions and Social Security. A retiree 65 or older can shelter up to $10,000 of pension or IRA income through the retirement deduction and up to $15,000 more through a separate age-based deduction, though those two deductions overlap in a way that catches people off guard at filing time.
Which Pension Income Is Taxable
South Carolina begins with your federal taxable income, not federal adjusted gross income.1South Carolina Department of Revenue. Individual Income Tax Anything already excluded federally never enters the state calculation. Qualified Roth IRA and Roth 401(k) withdrawals fall in that category, so South Carolina never touches them.
What does flow into South Carolina taxable income: distributions from traditional IRAs, 401(k) plans, 403(b) plans, 457 deferred compensation arrangements, Keogh plans, and employer-sponsored pensions. Government pensions from federal, state, and local employers are taxable on the same basis.2South Carolina Legislature. South Carolina Code Title 12 Chapter 6 Section 12-6-1170 From there, the state applies subtractions.
The Retirement Income Deduction
The primary shelter for pension and IRA distributions is the retirement income deduction under Code Section 12-6-1170. The amount depends on your age at the end of the tax year.3South Carolina Department of Revenue. Income Tax – Age 65 and Older Deduction, General and Military Retirement Deductions, and Earned Income Offset
- Under age 65: up to $3,000 of qualified retirement income per year.
- Age 65 or older: up to $10,000 per year.
Qualified retirement income covers distributions from plans defined in Internal Revenue Code Sections 401, 403, 408, and 457, plus all public employee retirement plans at the federal, state, and local level.2South Carolina Legislature. South Carolina Code Title 12 Chapter 6 Section 12-6-1170 That sweeps in traditional IRAs, 401(k)s, 403(b)s, government pensions, and deferred compensation plans. The distribution cannot be subject to a federal early-withdrawal penalty.
On a joint return, each spouse computes the deduction separately based on their own retirement income and age. A couple where one spouse is 62 and the other is 67 can combine a $3,000 deduction with a $10,000 deduction for $13,000 total.3South Carolina Department of Revenue. Income Tax – Age 65 and Older Deduction, General and Military Retirement Deductions, and Earned Income Offset
The Age 65 and Older Deduction
A second deduction opens up the year you turn 65. Under Code Section 12-6-1170(B), you can deduct up to $15,000 of any South Carolina taxable income, not just retirement income. Wages, interest, dividends, capital gains, and rental income all qualify.3South Carolina Department of Revenue. Income Tax – Age 65 and Older Deduction, General and Military Retirement Deductions, and Earned Income Offset
The catch: this $15,000 deduction must be reduced by whatever you already claimed under the retirement income deduction or the military retirement deduction. The two do not stack cleanly. A 66-year-old who claims the full $10,000 retirement deduction can only claim an additional $5,000 under the age 65 deduction, for a combined $15,000. If both spouses on a joint return are 65 or older, each gets their own $15,000 (reduced by their own retirement deduction), so the household maximum is $30,000.3South Carolina Department of Revenue. Income Tax – Age 65 and Older Deduction, General and Military Retirement Deductions, and Earned Income Offset
For a retiree whose only income is a pension, the practical combined benefit tops out at $15,000 per person, not $25,000. The age 65 deduction earns its keep when you have income beyond the pension, such as investment returns or part-time wages, because it can absorb that income after the retirement deduction handles the first $10,000 of pension distributions.
Military Pensions Are Fully Exempt
Military retirement pay is not taxed by South Carolina. There is no cap, no age requirement, and no earned-income limitation. The entire amount of otherwise taxable military pension is deducted.4South Carolina Legislature. South Carolina Code Title 12 Chapter 6 Section 12-6-1171
Surviving spouses receiving benefits from a deceased service member’s military retirement plan get the same treatment. Qualifying income for surviving spouses includes retirement benefit payments and dependency and indemnity compensation tied to the deceased spouse’s military service.4South Carolina Legislature. South Carolina Code Title 12 Chapter 6 Section 12-6-1171
Military retirees who still work qualify for an additional deduction under Section 12-6-1171(A)(1) equal to the lesser of their earned income, their taxable military retirement income, or $17,500.3South Carolina Department of Revenue. Income Tax – Age 65 and Older Deduction, General and Military Retirement Deductions, and Earned Income Offset This earned income offset does not shrink the military retirement deduction itself, but it does reduce the general retirement income deduction and the age 65 deduction for that same person.
A retiree drawing both a military pension and a civilian pension uses both tracks. Consider a 67-year-old with a $24,000 military pension and a $14,000 traditional IRA distribution. The military pension is fully exempt. The IRA distribution is sheltered up to $10,000 by the retirement deduction, leaving $4,000 exposed. That remainder can then be absorbed by the age 65 deduction, which still has $5,000 of room after the reduction.
Social Security Is Not Taxed
South Carolina does not tax Social Security benefits. Because the state uses federal taxable income as the starting point and provides a subtraction for any Social Security income that was taxable federally, retirees whose only income is Social Security owe no state tax.1South Carolina Department of Revenue. Individual Income Tax Railroad retirement benefits are treated the same way. No election or special form is needed.
The Rate on What Remains
Pension income left standing after the deductions is taxed at South Carolina’s graduated rates. For tax year 2025, the brackets for individuals work out to three effective tiers:5South Carolina Legislature. South Carolina Code Title 12 Chapter 6 Section 12-6-510
- $0 to $3,560: 0%
- $3,560 to $17,830: 3%
- $17,830 and above: 6%
Bracket thresholds are indexed and adjust annually, so check the current year’s SC1040 Tax Tables at filing time.
Claiming the Deductions on Your Return
All of these deductions live in the subtractions section of Form SC1040:6South Carolina Department of Revenue. 2025 Individual Income Tax Instructions SC1040
- Lines p-1 through p-3: retirement income deduction, with separate worksheets for the primary taxpayer, spouse, and surviving spouse.
- Lines p-4 through p-6: military retirement deduction.
- Lines q-1 and q-2: age 65 and older deduction, one line per spouse.
The instructions walk you through reducing the age 65 deduction by any retirement or military deduction already claimed. Skip that step and the math will not add up, which usually produces a notice from the Department of Revenue.
Part-Year Residents
If you moved into or out of South Carolina during the year, file as a part-year resident using Schedule NR with the SC1040. Only pension income received while you were a South Carolina resident is taxed by the state, and it goes in Column B of Schedule NR.7South Carolina Department of Revenue. 2025 Nonresident Schedule Instructions Your deductions are prorated by the ratio of your South Carolina income to your total federal income. A retiree who lived in the state for six months with $24,000 in annual pension income reports roughly $12,000 on Schedule NR, and the retirement deduction is scaled accordingly.