Yes, South Carolina does tax pensions, but several deductions can shrink the bill substantially and, for many retirees, erase it. Pension payments, 401(k) withdrawals, and IRA distributions flow into your South Carolina return from your federal return and are taxable by default. From there, the state subtracts Social Security entirely, lets you deduct up to $3,000 of retirement income if you’re under 65 or up to $10,000 once you turn 65, and adds a separate deduction of up to $15,000 for seniors that can apply to any kind of income. Military retirement pay is fully exempt at any age.
What Counts as Taxable Pension Income
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 starts out taxable in South Carolina too. The state then applies its own subtractions before calculating what you actually owe.
Social Security benefits come out first. The state removes them from income entirely, regardless of amount.2South Carolina Legislature. South Carolina Code 12-6-1120 – Gross Income Railroad retirement benefits that would be taxable federally are treated the same way.3South Carolina Department of Revenue. IIT FAQs Everything else — private pensions, government pensions, traditional IRA withdrawals, 401(k), 403(b), and 457 distributions — stays in the pot until the retirement income deductions are applied.
If You’re Under 65: The $3,000 Deduction
Retirees under 65 can deduct up to $3,000 per year of qualified retirement income.4South Carolina Legislature. South Carolina Code 12-6-1170 – Retirement Income Deduction From Taxable Income for Individual Qualifying sources include traditional IRAs, 401(k), 403(b), and 457 plans, and both private and public pension plans, which covers federal, state, and local government pensions. The distribution can’t be subject to a federal early-withdrawal penalty.
If your qualifying retirement income for the year is less than $3,000, the deduction is capped at what you actually received. You must be the original account owner to claim it.
If You’re 65 or Older: Up to $25,000 in Deductions
Once you reach 65, the retirement income deduction grows to $10,000 per year against the same categories of retirement income.4South Carolina Legislature. South Carolina Code 12-6-1170 – Retirement Income Deduction From Taxable Income for Individual The larger amount is available in the tax year you turn 65; you don’t have to wait until the following year. You claim either the $3,000 or the $10,000 version based on your age during the year, not both.
The Separate $15,000 Senior Deduction
At 65, a second deduction opens up: up to $15,000 against any taxable income, not just retirement income.5South Carolina Department of Revenue. Age 65 and Older Deduction General and Military Retirement Deductions and Earned Income Offset That can soak up wages from part-time work, rental income, investment earnings, or anything else taxable. The catch: the $15,000 is reduced dollar-for-dollar by whatever you claim under the retirement income deduction.
If you claim the full $10,000 retirement income deduction, your senior deduction drops to $5,000. The two together still max out at $15,000 for a single filer.5South Carolina Department of Revenue. Age 65 and Older Deduction General and Military Retirement Deductions and Earned Income Offset
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.4South 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 retirement income, with the same dollar-for-dollar offset against the senior deduction.
Military Retirement Is Fully Exempt
South Carolina does not tax military retirement pay at all. There’s no dollar cap and no age requirement.6South Carolina Legislature. South Carolina Code 12-6-1171 – Military Retirement Income Deduction The exemption covers retirement pay from the Army, Navy, Air Force, Marine Corps, Space Force, and Coast Guard, along with retirement income from the National Guard and Reserves.7South Carolina Department of Revenue. Retirees – Lower Your Individual Income Tax Bill With These Five Tips Surviving spouses receiving a deceased service member’s military retirement benefits can claim it too.
The military exemption runs alongside the age-based deductions. A veteran drawing both a service pension and a civilian pension can exempt the military pay in full and still apply the $3,000 or $10,000 retirement income deduction to the civilian pension.
Pensions Earned in Another State
If you earned your pension working somewhere else and now live in South Carolina, it’s taxable here. The state taxes retirement income based on where you reside when you receive it, not where you earned it.3South Carolina Department of Revenue. IIT FAQs The same deductions apply.
If you already paid state income tax to another state on your employee contributions to the plan, South Carolina provides a credit to offset the double tax.8South Carolina Legislature. South Carolina Code 12-6-3500 – Retirement Plan Credit The credit is spread over your life expectancy from the year you first claim the retirement income deduction, and the total can’t exceed what South Carolina itself would have charged on those contributions.
What You’ll Actually Pay on What’s Left
Whatever retirement income survives Social Security’s full exemption, the military exclusion, and the age-based deductions runs through South Carolina’s graduated rates. The state uses three brackets topping out at 6.0%.9South Carolina Legislature. South Carolina Code of Laws – Title 12 – Chapter 6 – Taxation For 2026, the 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 the income inside each range is taxed at that range’s rate. A single retiree who is 65 with $40,000 in total income and the combined $15,000 in deductions would be taxed on $25,000, with the first $3,640 of that at 0%, the next slice at 3%, and the remainder at 6%. After the Social Security exemption and the age-based deductions, many retirees land partly or entirely in the 0% or 3% range.
Paying the Tax Through the Year
If you expect to owe $100 or more in South Carolina income tax, you have to make quarterly estimated payments.10South Carolina Department of Revenue. 2025 SC1040 Individual Income Tax Form and Instructions That requirement applies to retirees who don’t have state tax withheld from their pension or IRA distributions; there’s no age-based exemption.
To avoid an underpayment penalty, pay at least 90% of what you’ll owe for the current year through estimated payments, or 100% of last year’s liability (110% if your prior-year AGI exceeded $150,000). The quarterly due dates are April 15, June 15, and September 15, with the final payment on January 15 of the following year. Alternatively, you can ask your pension administrator to withhold South Carolina tax directly from your distributions, which handles the obligation without separate quarterly filings.