South Carolina Retirement Taxes: Social Security, Pensions, and IRAs

South Carolina retirement taxes are among the lightest in the country. Social Security benefits are fully exempt from state income tax, residents 65 and older can shield up to $15,000 per person of other taxable income (or $30,000 for a married couple where both spouses qualify), military retirement pay is completely exempt at any age, and the state imposes no estate or inheritance tax. Property tax breaks for homeowners 65 and older round out a picture that leaves many retirees owing little or nothing to Columbia at filing time.

Social Security Is Not Taxed

South Carolina excludes Social Security benefits from state taxable income entirely, regardless of your total income or age.¹ The state ignores the federal rule (IRC Section 86) that makes a portion of Social Security taxable at the federal level. Railroad Tier 1 retirement benefits get the same treatment.²

Because Social Security is removed before the state’s tax calculation begins, it does not use up any of the retirement deductions described below. Those deductions stay available for pensions, IRA withdrawals, and other taxable income.

The Retirement Income Deduction for Pensions, 401(k)s, and IRAs

The retirement income deduction is the main shelter for distributions from qualified retirement plans. It applies to plans under Internal Revenue Code Sections 401, 403, 408, and 457, which covers 401(k)s, 403(b)s, traditional IRAs, government pensions, and 457 deferred compensation plans.³

The amount depends on your age:

Under 65: up to $3,000 of qualifying retirement income per year.
65 and older: up to $10,000 per year.

On a joint return where both spouses are 65 or older and each receives qualifying retirement income, each spouse claims the $10,000 deduction separately, for a combined $20,000.⁴

One detail catches people. Income from non-qualified annuities does not qualify, because those plans fall outside the IRC sections the statute names. That income is still taxable in South Carolina, though the age 65-and-older deduction can offset it.

The Age 65 and Older Deduction

Any South Carolina resident who turns 65 by year-end can claim a deduction of up to $15,000 against any type of state taxable income: wages, interest, dividends, capital gains, rental income, or retirement distributions.⁵

The $15,000 is not stacked on top of the retirement income deduction. It is reduced dollar for dollar by whatever you already claimed under that deduction.⁴ So if you deducted $10,000 of pension income under the retirement income deduction, you have only $5,000 of age 65-and-older deduction left. The combined ceiling is $15,000 per person.

For married couples filing jointly, the joint cap is $15,000 if one spouse is 65 or older, and $30,000 if both have reached 65.⁵ Each spouse’s retirement income deduction reduces only their own share, not the other spouse’s.

Both deductions apply whether you itemize or take the standard deduction on your federal return.

Military Retirement Pay Is Fully Exempt

Military retirees get a simpler deal. All military retirement pay included in your South Carolina taxable income is exempt from state tax, with no age requirement and no dollar cap.⁶ The full exemption has been in place for tax years beginning after 2021. A surviving spouse receiving military retirement income attributable to a deceased service member can also claim it.

There is a tradeoff. When you claim the military exemption, your deductions under the general retirement income deduction and the age 65-and-older deduction are reduced by the amount of military income you excluded.⁷ A military retiree whose only retirement income is military pay still owes nothing on it, but has no remaining deduction to apply to other income like interest or capital gains. A retiree with both military and civilian pensions exempts the military portion in full, then applies a smaller remaining deduction to the civilian portion. The reduction rule does not apply to a surviving spouse’s own separate retirement deduction.

How the Math Works: Two Examples

A single retiree age 67 with $40,000 in 401(k) withdrawals and $22,000 in Social Security ignores the Social Security entirely. From the $40,000, she subtracts $10,000 under the retirement income deduction and another $5,000 under the age 65-and-older deduction (the remaining $15,000 cap after the $10,000 already used). That leaves $25,000 of South Carolina taxable income and a state bill of roughly $1,425.

A married couple both over 65, each with $30,000 in pension income and $24,000 in Social Security, ignores the Social Security. Their combined $60,000 of pension income is reduced by $30,000 (two $15,000 caps). The remaining $30,000 is taxed at the state’s graduated rates for a bill in the neighborhood of $1,600.

Retirees with modest incomes can hit zero. If your non-Social Security income is $15,000 or less per person and you are over 65, the deductions can wipe out the state bill entirely.

State Income Tax Brackets

South Carolina starts from your federal taxable income, not adjusted gross income, then subtracts Social Security and the retirement deductions.⁸ What remains runs through a three-bracket structure. For tax year 2025:

0% on the first $3,640 of South Carolina taxable income
3% on taxable income from $3,640 to $18,220
6% on taxable income above $18,220⁹

Because the 6% rate applies only to income left over after Social Security and the retirement deductions come out, most retirees pay an effective rate well below 6%.

Property Tax Breaks for Homeowners 65 and Older

Two features cut property taxes for retirees who own their home.

The 4% Legal Residence Assessment Ratio

South Carolina taxes real property on a percentage of fair market value. Your primary residence qualifies for a 4% assessment ratio, so only 4% of the home’s fair market value is subject to local millage. A second home or investment property is assessed at 6%.¹⁰ You must apply for the 4% ratio through your county assessor, and approval is a prerequisite for the homestead exemption.¹¹

The Homestead Exemption

The homestead exemption removes the first $50,000 of your home’s fair market value from county, municipal, school, and special assessment property taxes.¹² On a $200,000 home, only $150,000 of value is subject to the 4% assessment and local millage.

You qualify if all three apply:

You have been a permanent South Carolina resident for at least one full calendar year before the tax year claimed.
You are 65 or older by December 31 of the year before the tax year, or classified as totally and permanently disabled by a state or federal agency, or legally blind.
You hold full ownership or a life estate in the property, and it is your primary residence.

The exemption also applies when spouses jointly own the home and either one meets the age, disability, or blindness requirement.¹² You apply through your county auditor with proof of age, residency, and ownership.¹³

Sales Tax

South Carolina charges a 6% state sales tax on most purchases, and counties may add a local option tax on top. Two exemptions matter for retirees living on a fixed budget: unprepared grocery food is exempt from state sales tax, and prescription medications are also exempt.

No State Estate or Inheritance Tax

South Carolina imposes no state-level estate tax and no inheritance tax. The only estate tax that reaches South Carolina residents is federal, and for 2026 it applies to estates above $15,000,000.¹⁴ Most retirees fall well below that threshold. For those approaching it, the 2026 annual gift tax exclusion is $19,000 per recipient, which allows gradual transfers during your lifetime.¹⁵

Federal Taxes Still Apply

South Carolina’s treatment of retirement income does not touch your federal bill. Your 401(k) withdrawals, pension payments, and traditional IRA distributions remain fully taxable federally. For 2026, the federal standard deduction is $16,100 for single filers and $32,200 for married couples filing jointly.¹⁶ Federal rates run from 10% to 37%. Adjusting your withholding on periodic retirement payments using IRS Form W-4P can prevent surprises at filing time, because for many South Carolina retirees the federal bill is the larger one.

1
South Carolina Legislature. South Carolina Code 12-6-1120 – Gross Income Computation Modifications
2
South Carolina Department of Revenue. Retirees – Lower Your Individual Income Tax Bill With These Five Tips
3
South Carolina Legislature. South Carolina Code 12-6-1170 – Retirement Income Deduction
4
South Carolina Department of Revenue. SC Revenue Ruling 21-13 – Age 65 and Older Deduction, General and Military Retirement Deductions, and Earned Income Offset
5
South Carolina Legislature. South Carolina Code 12-6-1170 – Retirement Income Deduction – Section B
6
South Carolina Legislature. South Carolina Code 12-6-1171 – Military Retirement Income Deduction
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South Carolina Legislature. South Carolina Code 12-6-1170 – Retirement Income Deduction – Section C
8
South Carolina Department of Revenue. Individual Income Tax
9
South Carolina Department of Revenue. Individual Income Taxes Policy Manual – Chapter 3
10
South Carolina Department of Revenue. Individual Property Tax Policy Manual – Chapter 5
11
South Carolina Department of Revenue. Exempt Property
12
South Carolina Legislature. South Carolina Code 12-37-250 – Homestead Exemption
13
South Carolina Department of Revenue. Homestead Exemption Flyer
14
Internal Revenue Service. Estate Tax
15
Internal Revenue Service. Whats New – Estate and Gift Tax
16
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026