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South Carolina Retirement Tax Friendliness

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Overview of South Carolina Retirement Tax Friendliness

South Carolina does not tax Social Security retirement benefits. It also provides a $10,000 taxable income deduction for seniors receiving any other type of retirement income. The state has some of the lowest property taxes in the country.

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South Carolina Retirement Taxes

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Planning your retirement escape? If warm weather, sandy beaches and low taxes are among your priorities, South Carolina may be a good choice. The Palmetto State has some of the country’s most beautiful shoreline, and it's retirement tax-friendly to boot.

What makes South Carolina a good choice for budget-conscious seniors? Well, for starters, its cost of living is a bit lower than the national average. On top of that, it provides a full income tax exemption for all Social Security retirement benefits and multiple other deductions for retirement income and total income.

A financial advisor can help you plan for retirement and other financial goals. Finding a financial advisor. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

Is South Carolina tax-friendly for retirees?

South Carolina does not tax Social Security retirement benefits whatsoever. It provides a substantial deduction on all other types of retirement income, including income from retirement accounts. Retirees who own a home in South Carolina will fare especially well, as the state has some of the lowest property taxes in the country at 0.56%.

Is Social Security taxable in South Carolina?

Any Social Security that is included in your adjusted gross income (AGI) for federal purposes can be subtracted out of your AGI on your South Carolina tax return. This, along with the low cost of living in South Carolina, means it is possible for some seniors in the Palmetto State to survive on Social Security retirement benefits alone.

Are other forms of retirement income taxable in South Carolina?

Yes, but they are also largely deductible. For taxpayers under the age of 65 the deduction is $3,000. For seniors 65 and older, the deduction is $10,000. This can be applied across all types of retirement income, including income from a 401(k), an IRA, a government pension or a public pension. Those with a military retirement plan can exclude up to the amount of military retirement income that is included in South Carolina taxable income. 

If you are a senior and your total income from all those sources is less than $10,000, you will not pay any South Carolina income taxes. Above that limit, you may need to pay taxes at the rates shown in the table below.

Income Tax Brackets

All Filers
South Carolina Taxable IncomeRate
$0 - $3,4600%
$3,460 - $17,3303%
More than $17,3306.5%

How high are property taxes in South Carolina?

South Carolina’s property taxes are among the lowest in the United States. The average effective property tax rate is just 0.56%. This means homeowners can expect to pay about $560 for every $100,000 in home value.

Indeed, most South Carolina homeowners pay a little more than $1,000 annually in property taxes. This contributes to the low cost of housing in South Carolina. But for seniors, costs may be even lower. The Homestead Exemption in the state can significantly reduce property taxes.

What is the South Carolina Homestead Exemption?

Homeowners 65 and older qualify for the South Carolina Homestead Exemption. If the property has served as your primary residence for at least one year, the first $50,000 of your home’s fair market value is exempt from taxation. This can lead to hundreds of dollars of savings each year off South Carolina’s already low property taxes. Apply for the exemption at your county auditor’s office.

How high are sales taxes in South Carolina?

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Sales taxes in South Carolina are somewhat higher than the national average. They range from 6% (the state rate) to a maximum of 9%. In most of the state, the rate is either 7% or 8%.

Prescription drugs and groceries are fully exempt from sales taxes. However, clothing is taxable, as are motor vehicles indirectly through the infrastructure maintenance fee.

What other South Carolina taxes should I be concerned about?

If you plan on supporting yourself during retirement with investments that are not held in a retirement account, it’s important to be aware of South Carolina’s tax on long-term capital gains. Gains made on investments, whether they were held for more than or less than one year, are subject to the South Carolina income tax rates shown in the table above. Long-term gains, which are held for at least one year, receive a 44% deduction, though.

South Carolina does not have an estate or inheritance tax.

Most Tax Friendly Places for Retirees

SmartAsset’s interactive map highlights the places in the country with tax policies that are most favorable to retirees. Zoom between states and the national map to see the most tax-friendly places in each area of the country.

Rank City Income Tax Paid Property Tax Rate Sales Tax Paid Fuel Tax Paid Social Security Taxed?

Methodology Our study aims to find the areas with the most tax-friendly policies for retirees. To do that we looked at how the tax policies of each city would impact a retiree with a $50,000 income. Our hypothetical retiree is getting $15,000 from Social Security benefits, $10,000 from a private pension, $15,000 from retirement savings like a 401(k) or IRA and $10,000 in wages.

To calculate the expected income tax this person would pay in each location we applied deductions and exemptions. This included the standard deduction, personal exemption and deductions for each specific type of retirement income. We then calculated how much this person would pay in income tax at the federal, state, county and local levels.

We calculated the effective property tax rate by dividing median property tax paid by median home value for each city.

In order to determine sales tax burden we estimated that 35% of take-home (after-tax) pay is spent on taxable goods. We multiplied the average sales tax rate for a city by the household income less income tax. This product is then multiplied by 35% to estimate the sales tax paid.

For fuel taxes, we first distributed statewide vehicle miles traveled down to the city level using the number of vehicles in each county. We then calculated miles driven per capita in each city. Using the nationwide average fuel economy, we calculated the average gallons of gas used per capita in each city and multiplied that by the fuel tax.

For each city we determined whether or not Social Security income was taxable.

Finally, we created an overall index weighted to best capture the taxes that most affect retirees. We gave a 4x weighting to income tax, 3x weighting to property tax rate, a 2x weighting to sales tax and 1x weighting to fuel tax.

Sources: Internal Revenue Service, Social Security Administration, state websites, local government websites, US Census Bureau 2014 American Community Survey, Avalara, American Petroleum Institute, GasBuddy, UMTRI, Federal Highway Administration