South Carolina Retirement Tax Friendliness
South Carolina is the 40th most extensive and 23rd most populous state in the United States. According to 2016’s BEA Data, South Carolina’s GDP sits at around $183 billion and represents just over one percent of the United States’ total GDP.
South Carolina’s GDP is good for the 26th largest in the nation and enjoys a growth rate of just over 3 percent. If you currently live in South Carolina, chances are good that you already know all the benefits that the state offers when it comes to forgiving tax rates throughout the state.
Believe it or not, South Carolina has one of the lowest per capita tax rates in the country, according to the United States Bureau of the Census. The reason why is that the state and local politicians have made it clear that they are committed to ensuring that the state’s tax structure remains competitive amongst its neighbors and attractive to current and potential future residents.
But does South Carolina tax your pension? Continue reading to find out.
South Carolina Income Tax
South Carolina’s income tax structure follows the federal income tax laws while allowing for many of the same adjustments, exemptions, and deductions. There are just a few modifications that apply to the Palmetto State specifically.
South Carolina does not tax the first $2,910 of federal taxable income. For any amounts over $2,910, South Carolina’s graduated tax rate is 3-7 percent of taxable income.
The individual income tax brackets are adjusted annually for inflation.
To compare South Carolina’s tax rates with other states, all you have to do is look at each state’s total tax package. Make sure not to only look at their tax rate. The reason is that some states may have a lower individual income tax, but not the Social Security benefits that South Carolina has to offer.
One thing that sets South Carolina apart compared to many states is that it does not tax Social Security benefits or railroad retirement income. Beyond that, South Carolina also allows residents to apply for special deductions if they are retirees and senior adults.
Beginning the first year you receive qualified retirement income and until you reach the age of 65, you can take an annual deduction from your qualified deduction for income received of up to $3,000.
You can then claim this deduction for income received for any qualified retirement plan. These include IRAs, government pension plans, Keogh plans, and private sector pensions as well.
Once you hit the age of 65, the deduction increases to a maximum limit of $15,000 on any source of income. Each spouse that receives income from a qualified retirement plan such as a pension or IRA may claim the retirement deduction.
How do Taxes Relate to your Pension?
Does South Carolina tax your pension? Overall, the taxable part of your pension is generally subjected to federal income tax withholding. While you may be able to choose not to have income tax withheld from your pension or annuity payments, you may also want to specify how much of that tax is withheld.
Typically, pensions are funded with pre-tax dollars. That being said, pension payments are partly taxable if contributions of the pension were made with after-tax dollars. You will not be responsible for paying taxes on the percentage of your pension payment that represents a return of your after-tax payment.
In retirement, since your pension was likely funded with pre-tax dollars, you can expect some kind of income tax on your pension income.
While South Carolina does tax pensions partially, there are 14 states that do not if your pension is your main source of income.
- New Hampshire
- South Dakota
Keeping that in mind, South Carolina is a fantastic place to live in your retirement. A major reason is because of the state’s fantastic tax deductions, besides the partial or low South Carolina tax pension of course.
Here are some of the other common deductions in the state of South Carolina:
- Disability retirement income for a permanently and totally disabled person is deductible in South Carolina.
- There is no intangibles tax in South Carolina, meaning that there is no general personal income tax imposed on bank accounts, interest, dividends, stocks, bonds, and other assets.
- You do not have to pay a tax in the state of South Carolina if you have sold the property in a different state.
- South Carolina has adopted federal provisions that allow up to $500,000 (if married, filing jointly) of financial gain from the sale of your home to be excluded from your taxes.
- A two-wage earner credit allows married couples to take up to a maximum tax credit of $210 annually if both work.
- A credit is allowed for income taxes paid to another state on income taxable in both states.
- An additional state income tax is allowed for child and dependent care expenses.
- A credit of up to $300 annually is allowed for nursing care or in a licensed institution.
- Parents can claim an added deduction equal to the amount of federal personal exemption.
- Parents, guardians, or students are able to qualify for partial credit on tuition fees paid to a college or university within the state of South Carolina.
- South Carolina offers an owner of a pass-through business the option of having active trade or business income taxed at a flat rate rather than the normal tax rate.
South Carolina Property Tax
So now you have a great idea of what you can expect when it comes to South Carolina tax pension and income taxes in the state, but what about property taxes?
South Carolina counties, cities, and school districts impose property taxes on real and personal property.
Your local government will assess and collect most property taxes. The market value of a legal residence and up to five acres of surrounding land is assessed at four percent. The tax liability on property is determined by a local government when it applies its millage rate to the assessed value.
South Carolina also allows a $50,000 homestead exemption on the fair market value of a home for residents who are at least 65 years of age, totally and permanently disabled, or legally blind.
Personal property tax is collected annually on cars, trucks, motorcycles, recreational vehicles, boats, and airplanes. Personal cars, light trucks, and motorcycles are set to be assessed at six percent of their market value. If you own a $20,000 car, based on your average mileage rate, your annual property tax would be around $380.00. Another personal property is assessed at 10.5 percent.
The registration fee for your passenger car is $24 in the state of South Carolina every two. years. It can be paid when you pay your county property tax. Many states impose high registration fees compared to those of South Carolina.
South Carolina Estate Tax or Gift Tax
Unlike many other states in the United States, South Carolina does not impose either an estate tax or a gift tax.
Now that you know more about the tax rates and tax pensions of South Carolina, hopefully, you have a better idea of how the state’s tax rates would impact your lifestyle. If you are looking to make a move to a new state that is forgiving to small business owners and encourages growth, South Carolina is certainly a place to consider.
Is South Carolina A Good Place To Retire?
Without a doubt, one of the key benefits of retiring in South Carolina is that it’s a very tax-friendly state for retirees. Now just a disclaimer: we are not an accountant and we are not an attorney, but we do help many people buy condos and homes in the Myrtle Beach, South Carolina area.
Whether it’s a beachfront house, condominium, or a tiny waterfront home – all with the latest features and amenities – Jerry Pinkas Real Estate Experts can help you find the ideal property for your requirements. With over 18 years in the business, our team has extensive experience and expertise in fitting clients with the right property that perfectly meets their needs, be they residential or investment-related.
If you are looking for a low cost of living in a coastal area, great weather year-round, one of the lowest taxed states, lots of activities, low home costs, and a great beach lifestyle, we would love the opportunity to give you more information as to why this area is the number two fastest-growing metro area in the nation. Give us a call at 843-839-9870 Jerry Pinkas Real Estate Experts. Talk soon!