South Carolina Retirement Taxes: What Columbia Retirees Actually Pay

South Carolina is genuinely one of the most tax-friendly states in the Southeast for retirees — but the popular "$25,000 deduction" math is wrong, and traditional 401(k) and IRA withdrawals are not tax-free. Here's the accurate picture for 2025–2026.

Social Security: fully exempt

South Carolina does not tax Social Security benefits at all, and the same goes for railroad retirement benefits. Whatever portion of your Social Security is taxable on your federal return comes back out on the South Carolina return. For a retiree whose income is mostly Social Security, the state income tax bill is often zero.

The income tax rate is low and still falling

South Carolina uses a graduated income tax with just three brackets for 2025: 0% on the first ~$3,560 of taxable income, 3% on the next band, and a 6% top rate on taxable income above ~$17,830. The top rate was 7% a few years ago and has been ratcheting down — it hit 6% for tax year 2025, and lawmakers have floated further cuts (a proposed two-tier 1.99%/5.39% structure) that are not yet law. Plan around the enacted 6% top rate.

The retirement deduction — and the trap in the math

Withdrawals from traditional 401(k)s, IRAs, 403(b)s and most pensions are taxable income in South Carolina. But two deductions soften that, and understanding how they interact is where most online guides get it wrong:

  • Retirement Income Deduction: up to $3,000 if you're under 65, rising to $10,000 at 65+, applied to qualified retirement income from your own plan.
  • Age 65 and Older Deduction: up to $15,000 against any income once you turn 65.
You can't simply add them to $25,000. Under South Carolina Department of Revenue rules, the retirement deduction and the age-65 deduction combined cannot exceed $15,000 per taxpayer. Claim the $10,000 retirement deduction and your age-65 deduction is capped at $5,000 — total still $15,000. The real headline: a married couple who are both 65+ can shelter up to $30,000 of retirement income ($15,000 each), on top of fully-exempt Social Security. Income above that is taxed at up to 6%.

Military retirement: fully deductible

Since 2022, South Carolina lets residents deduct all military retirement income, at any age. That matters in Columbia more than almost anywhere — Fort Jackson is the Army's largest basic-training installation, and the Midlands has a deep population of military retirees. (Note: the military deduction reduces the $15,000 age-65 deduction, so you don't double-dip, but full military pay coming off the top is the bigger benefit.)

No estate or inheritance tax

South Carolina has no estate tax and no inheritance tax. For anyone moving from a state that levies one — New Jersey, Illinois and a dozen others — this can be a larger lifetime number than the income-tax difference, and it never shows up on a "tax-friendly states" ranking.

Sales tax: the one number that runs higher

The state sales tax is 6%, and counties add up to 3% on top, for a Midlands average around 7.7%. The offsets that matter for retirees: groceries and prescription drugs are fully exempt, and vehicle sales tax is capped (the state's "Infrastructure Maintenance Fee" tops out at $500 per vehicle), so a car purchase costs far less in tax than the headline rate implies.

Where the real money is for most Columbia retirees: not the income tax — it's the property tax. South Carolina's owner-occupied assessment ratio and the over-65 homestead exemption are unusually generous, and unusually easy to miss. Read the 4% vs 6% property-tax guide next — it's the single most consequential filing you'll make here.
Want this run against your actual pension, Social Security and withdrawal mix?
Get personalized help

Sources: South Carolina Department of Revenue (Individual Income Tax; IIT FAQs; SC1040 instructions, 2025); SCDOR Tax Tips, "Retirees — Lower Your Individual Income Tax Bill." Figures for tax years 2025–2026; verify your specifics with a tax professional. This is general information, not tax advice.