Personal income taxes

Taxable income

How is taxable personal income determined in your state?

South Carolina has a simplified income tax structure that follows the federal income tax laws. South Carolina accepts the adjustments, exemptions, and deductions allowed on the federal tax return with a few modifications. The federal taxable income is the starting point in determining the state income tax liability; examples of state-specific rate differences or additional deductions exist with respect to long-term capital gains and flow-through income from an active trade or business. Individual income tax rates range from 0% to a top rate of 7% on taxable income. Tax brackets are adjusted annually for inflation. For 2017, an individual will be in the top bracket of 7% once income exceeds $14,650.

Tax residence

Under what circumstances is an individual deemed resident in your state for personal income tax purposes?

An individual is a South Carolina resident for income tax purposes when he or she is domiciled in South Carolina. An individual may be considered to be domiciled in South Carolina even if he or she lives outside South Carolina, when:

  • his/her intention is to maintain South Carolina as his/her permanent home;
  • South Carolina is the center of his/her financial, social, and family life; and
  • South Carolina is the place to which he/she intends to return if he/she is away.

Rates

What are the applicable personal income tax rates?

As mentioned above, individual income tax rates range from 0% to a top rate of 7% on taxable income. Tax brackets are adjusted annually for inflation. For 2017, the tax brackets for an individual or for a married couple filing jointly are:

$0-$2,930                           0%

$2,930-$5,860                    3%

$5,860-$8,790                    4%

$8,790-$11,720                  5%

$11,720-$14,650                6%

$14,650+                            7%

Flow-through active trade or business income, not related to personal services, is taxed at 3%.

Exemptions, deductions and credits

What exemptions, deductions, and credits are available?

   South Carolina personal income tax rules provide for a number of exemptions, deductions, and credits, including the following:

  • interest income from U.S. and South Carolina obligations is not taxable in South Carolina;
  • South Carolina provides for a deduction for contributions to certain 529 plans and to the South Carolina Tuition Prepayment Program: South Carolina provides a 44% deduction for long-term capital gains;
  • total and permanent disability income is excluded in South Carolina (even if taxed federally);
  • certain social security, retirement plan, and military retirement income are excluded; and
  • South Carolina gives taxpayers age 65 or over certain additional deductions and exclusions. 

South Carolina also provides numerous tax credits that are identified on Form SC1040TC, as well as a Tuition Tax Credit for certain students attending South Carolina colleges and a small Classroom Teacher Expenses Credit.

Credits

Energy and environmental credits:

  • Alternative Motor Vehicle Credit;
  • Biomass Resources Credit;
  • Brownfields Voluntary Clean-up Credit;
  • Conservation Credit;
  • Credit for Alternative Fuel Distribution and Storage;
  • Credit for Energy Conservation and Renewable Energy;
  • Credit for Renewable Fuels—Credit for Distribution or Dispensing Facility;
  • Credit for Renewable Fuels—Credit for Production Facility;
  • Credit for Water Impoundments and Water Controls;
  • Ethanol Biodiesel Production Credits—Credit for Qualified New Production Beginning January 1 2017;
  • Habitat Management Credit;
  • Recycling Facility Tax Credit;
  •  Renewable Energy Tax Incentive Program;
  •  Solar Energy Heating or Cooling System Installation Credit;
  •  Solar Energy Property Income Tax Credit; and
  • Whole Effluent Toxicity Testing Credit.

Entertainment industry credits:

  •  Commercial Production Credit;
  •  Motion Picture Production Company Rebates—Expenditures/Supplier Rebate;
  •  Motion Picture Production Company Rebates—Wage/Payroll Rebate;
  • Motion Picture Production Facility Credit; and
  •  Motion Picture Project Credit.

Historic rehabilitation and housing credits:

  • Abandoned Buildings Revitalization Credit; and
  • Historic Structure Rehabilitation Credit.

Investment credits:

  • Capital Investment Credit;
  •  Corporate Headquarters Credit;
  •  County Business Development Corporation Shareholder Credit;
  •  Credit for Infrastructure Construction;
  •  Income Tax Moratorium—Substantial Investment and New Job Creation;
  • Industry Partnership Fund Credit;
  • Palmetto Seed Capital Credit;
  • Rubber and Plastics Manufacturer Investment Credit;
  • South Carolina Business Development Corporation Shareholder Credit; and
  • Venture Capital Investment Incentive.

Job creation and other employer credits:

  •  Accelerated Small Business Credit;
  • Annual Job Credit;
  • Apprenticeship Income Tax Credit;
  • Credit for Hiring Family Independence Recipient;
  • Employee Child Care Programs Credit;
  • Job Development Credit; and
  • Job Retraining Credit.

Other credits:

  • Agricultural Use of Anhydrous Ammonia Credit; 
  • Credit Against License Tax for Infrastructure;
  • Deferral of Tax on Income Attributable to Foreign Trade Receipts;
  • Donated Deer Credit;
  • Milk Producer Credit;
  • Minority Business Credit;
  • Port Cargo Volume Increase Credit;
  •  Motor Fuel Tax Credit; and
  • Quality Improvement Program Credit.

Deductions and exemptions

South Carolina follows the federal rules subject to the following modification:

  • South Carolina does not recognize deductions for bonus depreciation, domestic production activities or qualifying shipping activities; 
  • Interest on state or local obligations other than South Carolina are additions to income;
  • State and local income taxes or state and local franchise taxes measured by net income, and any taxes measured by or with respect to net income, are added back; and
  • Federal net operating loss must be added back.

Filing requirements

What filing requirements and procedures apply?

South Carolina requires the annual filing of Form SC1040 (with Schedule NR for non-residents or part-year residents). The return must be filed by the following April 15 and if the due date falls on a Saturday, Sunday, or legal holiday, the return is due on the next business day. The filing of a Form SC4868 request for extension of time to file will allow an additional six months to file the South Carolina income tax return. If no income tax is due and the individual has been granted a federal extension of time to file a federal income tax return, the department will accept a copy of the federal extension. In this case, the individual need not send South Carolina a copy of the federal form by the due date of the tax return. In addition, an extension may be requested online if the individual pays his/her balance due online using MyDORWAY.dor.sc.gov, and by clicking “Make a Payment” on or before the due date. He/she should choose the individual payment option, enter his/her taxpayer information, and then choose the "Extension Payment" option on the following screen.

Employer obligations

What obligations are imposed on the employer in relation to the collection and remittance of state personal income taxes (eg, withholding)?

If the employee is working in South Carolina, regardless of where he or she is a resident, the income earned in South Carolina is taxed by South Carolina. If a South Carolina resident is earning wages in a state that does not have a state income tax, the withholding should be for South Carolina. South Carolina withholding tables are updated annually (Form WH-1603). Employers must apply for a South Carolina withholding tax file number in order to establish an account in which to deposit the employee’s payments. This can be done through MyDORWAY at MyDORWAY.dor.sc.gov or by completing Form SCDOR-111 (Business Tax Application). The number entitles the employer to be a withholding agent.

Employers/withholding agents (resident and non-resident) whose South Carolina withholding tax exceeds $15,000 during a quarter or who make 24 or more payments in a year are identified and must pay electronically via MyDORWAY.dor.sc.gov by their due date. Any employer/withholding agent with less than $15,000 per quarter may voluntarily submit payment electronically. All others must submit the payment using the Withholding Tax Coupon, Form WH-1601. Payments alone do not satisfy the filing requirement for withholding returns.

Resident employers/withholding agents are required to make payment of withholding taxes at the same time that their federal payments are due. Regardless of an individual’s state amount withheld, his/her payment is due at the same time as his/her federal payment is due. Resident employers are those whose principal place of business is in South Carolina.

Non-resident employers/withholding agents are required to make payments either quarterly or monthly. If the South Carolina state tax liability is less than $500 for the quarter, the payment is due by the last day of the month following the end of the quarter. Once the withholding reaches $500 or more during the quarter, it is due by the 15th of the following month. Non-resident employers are those whose principal place of business is outside of South Carolina.

There are two types of return: WH-1605 and WH-1606. Annual filers file only WH-1606. All employers/withholding agents (resident and non-resident) must complete WH-1605 for the first three quarters of the year. All employers/withholding agents (resident and non-resident) must complete WH-1606 if their South Carolina withholding account was open for any portion of the year. Employers/withholding agents should not file WH-1605 for the fourth quarter. A return must be filed for a quarter as long as the South Carolina withholding account is open, even if no tax is withheld and there are no employees. Delinquent tax notices may be issued for failure to file required quarterly tax returns.

Click here to view the full article.