SC Withholding Tax: Rates, Paycheck Impact, and Penalties

South Carolina withholding tax is the state income tax that employers pull from each paycheck using the Department of Revenue’s WH-1603 tables. For 2026, the top rate on those tables is 6.0%, but a new law (H. 4216) is replacing the state’s three-bracket structure with two brackets of 1.99% and 5.21% for tax year 2026, and the Department of Revenue is working through updated tables to match.¹² How much comes out of any given check depends on the wages, the pay period, and what the employee put on Form SC W-4.

Current Rates and What Changes in 2026

For 2025, South Carolina taxed individual income under SC Code Section 12-6-510 in three graduated brackets after indexing: 0% up to $3,560, 3% from $3,560 to $17,830, and 6.0% above $17,830.³ The 2026 WH-1603 tables employers are currently using continue that 6.0% top rate. Under the weekly table, wages above $1,220 (after allowance adjustments) are taxed at 6.0% on the excess.¹

H. 4216 changes the underlying tax for tax year 2026. There are now two brackets:

1.99% on taxable income under $30,000
5.21% on taxable income of $30,000 and above (minus $966)

The law also replaces the federal standard deduction with the South Carolina Income Adjusted Deduction (SCIAD): $15,000 for single or married filing separately, $22,500 for head of household, and $30,000 for married filing jointly or surviving spouses.²

The Department of Revenue has been directed to adjust the withholding tables to reflect these changes, but the current 2026 WH-1603 tables still reflect the older 6.0% structure. Employees may see slightly more withheld through part of 2026 than the new liability requires, which would come back as a larger refund at filing. Employers should watch for updated tables from the Department.

How Much Comes Out of a Paycheck

Every employee should file Form SC W-4 with their employer. The form captures filing status and the number of allowances claimed, and each allowance reduces the wages subject to withholding.⁴ More allowances mean less withheld per check.

Employers apply the SC W-4 data using the WH-1603 tables in one of two ways. The wage bracket method is a lookup: find the employee’s pay range for the applicable pay period and read across for the withholding amount. The percentage method subtracts the dollar value of claimed allowances from gross wages and applies the rate to the remainder. Either way, the goal is to collect roughly the right amount of tax across the year so nobody owes a large balance in April.

Bonuses and Other Supplemental Wages

Bonuses, commissions, and similar supplemental payments can be withheld at a flat 6.0% when paid separately from regular wages.¹ When supplemental pay is combined with regular wages in a single check, employers typically run the total through the standard bracket method.

Claiming Exempt

Some employees can skip South Carolina withholding entirely. You qualify if you had no state tax liability for the prior year (and got back everything withheld) and expect the same result this year. Military servicemembers and their spouses who elect the servicemember’s domicile, the spouse’s domicile, or the permanent duty station as their tax home also qualify. To claim it, write “Exempt” on line 7 of the SC W-4. The exemption expires December 31 each year, so a new form has to be filed annually.⁴

Who Has to Withhold

Any person or business doing business in South Carolina, or employing someone earning income in the state, must withhold state income tax if a worker’s wages are expected to reach $1,000 or more during the year.⁵ That includes out-of-state companies with no physical presence in South Carolina. One employee working in the state is enough to require a withholding account.⁶

South Carolina residents working for an in-state employer are the simple case. A resident working in another state is exempt from South Carolina withholding only if the other state requires withholding and the employer is actually withholding there. If the other state doesn’t require it, South Carolina still expects its share.⁵

Nonresidents earning wages in South Carolina are generally subject to withholding on those wages. There is a narrow exemption for temporary work: if a nonresident’s gross South Carolina wages fall at or below the federal personal exemption amount, withholding is not required. That exemption does not extend to construction, installation, engineering, or similar project-based work performed in the state.⁵

Withholding on Non-Wage Payments to Nonresidents

South Carolina’s withholding rules reach beyond regular wages. Two statutes catch payments to nonresidents for work or property use in the state, and businesses that only think in “payroll” terms sometimes miss them.

When a payer contracts with a nonresident for temporary services and the South Carolina portion of the contract exceeds (or could reasonably be expected to exceed) $10,000, the payer must withhold 2% of each payment. The nonresident can avoid the withholding by registering with the Secretary of State or the Department of Revenue; if the payer obtains an affidavit confirming that registration, the payer is off the hook.⁷

Rent and royalty payments to nonresidents of $1,200 or more per year for using property located in South Carolina also trigger withholding. The rate is the top individual income tax rate for payments to individuals, partnerships, trusts, and estates, and 5% for payments to nonresident corporations or other entities.⁸

Registering, Depositing, and Reconciling

New employers register for a South Carolina withholding account through MyDORWAY as part of the business tax application.⁶ MyDORWAY also handles returns, payments, and W-2 and 1099 uploads.⁹

Deposit frequency depends on the employer:

Resident employers follow the same schedule they use for federal withholding, regardless of the state amount.
Nonresident employers with a quarterly state liability under $500 deposit by the last day of the month following the quarter. Once state withholding hits $500 or more in a quarter, payment is due by the 15th of the following month.

Electronic filing and payment are mandatory once annual South Carolina withholding reaches $15,000, or when you make 24 or more payments in a year.¹⁰

After the calendar year, every employer with an open withholding account files Form WH-1606, the fourth quarter and annual reconciliation, by January 31. It reconciles total withholding against deposits for the year and must be accompanied by copies of all W-2s issued.¹¹ Miss the deadline and you also delay your employees’ personal refunds, because the Department matches their returns against employer filings.

Penalties for Getting It Wrong

South Carolina punishes late filing more harshly than late payment. The two get confused, so it’s worth separating them:

Failure to file a return: 5% of the unpaid tax for each month (or partial month) late, capped at 25%.
Failure to pay tax shown on a return: 0.5% of the unpaid amount per month, also capped at 25%.
Negligence or disregard of regulations: 5% of the underpayment plus 50% of the interest owed.

These figures come from SC Code Section 12-54-43.¹² Interest on underpayments accrues at the same rate the IRS uses for federal underpayments, which the Department adopts under Section 12-54-25.¹³

The W-2 penalties sit on top of those. Failing to furnish a W-2 to an employee runs $100 to $1,000 per violation, and failing to file W-2s with the Department carries $100 to $2,000 per violation.¹⁴ These are per-employee amounts, so a payroll of any size can generate real exposure quickly.

For individual taxpayers who underwithhold, the underpayment penalty is not the flat 10% figure sometimes quoted informally. The actual calculation applies an annual percentage rate (tied to the IRS underpayment rate) to the shortfall for each day the installment goes unpaid, computed on Form SC2210. The result is much closer to an interest charge than a flat penalty, and it usually produces a smaller number than 10% of the shortfall.

1
South Carolina Department of Revenue. Withholding Tax Tables WH-1603 2026
2
South Carolina Department of Revenue. Information About H. 4216
3
South Carolina Legislature. South Carolina Code Section 12-6-510 – Tax Rates for Individuals, Estates, and Trusts for Taxable Years After 1994
4
South Carolina Department of Revenue. South Carolina Employee’s Withholding Allowance Certificate SC W-4 2026
5
South Carolina Department of Revenue. Employer Wage Withholding Requirements
6
South Carolina Department of Revenue. Apply for a Business Tax Account
7
South Carolina Legislature. South Carolina Code Section 12-8-550 – Withholding for Nonresidents
8
South Carolina Legislature. South Carolina Code Section 12-8-540 – Withholding for Rent or Royalty Payments
9
South Carolina Department of Revenue. MyDORWAY
10
South Carolina Department of Revenue. WH-105 Withholding Tax Guide
11
South Carolina Department of Revenue. SC Withholding Fourth Quarter and Annual Reconciliation Return WH-1606
12
South Carolina Legislature. South Carolina Code Section 12-54-43 – Civil Penalties and Damages
13
South Carolina Legislature. South Carolina Code Section 12-54-25 – Interest Due on Late Payments
14
South Carolina Legislature. South Carolina Code Title 12 Chapter 8 – Income Tax Withholding