South Carolina does not tax most pension income, but the rules depend on what type of pension you receive and when you started collecting it.

South Carolina excludes most private pensions, military pensions, and government pensions from state income tax. This means if you receive a pension check from a former employer, the military, or a government job, South Carolina will not tax that money at the state level. However, federal income tax still applies — the state exemption does not affect what you owe to the IRS.

The main exception is pensions from certain state and local government jobs. If you work for South Carolina state government, a city, or a county, your pension may be partially taxable depending on when you started your job and how much you earn from other sources. The rules are specific and vary by employer and hire date.

Key Takeaways

  • Private pensions and military pensions are not taxed by South Carolina, though federal tax still applies.
  • Government employee pensions from South Carolina state, city, and county jobs may be partially taxable depending on your hire date and total income.
  • Social Security benefits are not taxed by South Carolina under any circumstance.
  • You will still file a South Carolina tax return if you have other income, even if your pension itself is exempt.

Private Pensions and Military Pensions Are Fully Exempt

If you receive a pension from a private company — a former employer's retirement plan — South Carolina does not tax it. The same applies to military retirement pay. These pensions are completely excluded from South Carolina income tax, meaning you report them on your federal return but not on your state return.

This exemption covers defined-benefit pensions (a set monthly amount) and distributions from defined-contribution plans like 401(k)s or IRAs, as long as they are structured as pension payments. The exemption does not depend on your age, how long you worked, or how much the pension is worth.

Government Employee Pensions Have Income Limits and Hire-Date Rules

If you worked for South Carolina state government, a city government, or a county government, your pension may be taxable. South Carolina taxes government pensions based on two factors: when you were hired and how much total income you have in the year.

Employees hired before July 1, 1988, can exclude up to $10,000 per year of government pension income from state tax. Employees hired on or after July 1, 1988, can exclude up to $3,000 per year. These are annual caps — if your pension is larger, the amount above the cap is taxable at the South Carolina state rate.

Additionally, if your total income (including the pension, Social Security, investment income, and any other earnings) exceeds a certain threshold, your pension exemption may be reduced or eliminated. The income thresholds vary by filing status and change each year. You will need to check the current year's threshold on the South Carolina Department of Revenue website or consult a tax preparer to know whether your pension is affected.

Social Security Is Never Taxed by South Carolina

South Carolina does not tax Social Security benefits under any circumstance, regardless of your total income or filing status. This applies to retirement benefits, survivor benefits, and disability benefits paid by Social Security.

Even if you have other income that makes you file a South Carolina return, your Social Security is not included in the state taxable income calculation. You will report it on your federal return if required by the IRS, but it does not affect your South Carolina state tax.

Other Retirement Income and How It Is Taxed

Withdrawals from IRAs and 401(k)s are taxed by South Carolina as ordinary income, unless they are part of a pension structure (a series of equal payments over your lifetime). Lump-sum distributions are taxable. Interest and dividends from savings and investments are also taxable by South Carolina.

Roth IRA withdrawals are not taxed by South Carolina if the withdrawal is may have access to — meaning you have held the account for at least five years and are age 59½ or older, or meet another exception. Non-may have access to Roth withdrawals of earnings are taxed, though contributions are always tax-free.

Filing Requirements When You Have Pension Income

Even if your pension is exempt from South Carolina tax, you must file a state return if you have any other income that pushes you above the filing threshold. The threshold depends on your age and filing status and changes each year. For 2024, a single person age 65 or older must file if gross income exceeds $14,600; a married couple filing jointly where at least one spouse is 65 or older must file if gross income exceeds $18,400.

When you file, you will report your pension income on the return even if it is exempt, because the state needs to see the full picture to calculate whether other income is taxable. The exemption is applied as a deduction or exclusion on the return itself.

How to Report Pension Income on Your South Carolina Return

Your pension provider will send you a 1099-R form in January showing the amount paid to you in the previous year. You will use this form to report the pension on both your federal and state returns. If your pension is exempt, you still report the full amount but claim the exemption as a deduction or exclusion depending on the type of pension.

For private and military pensions, you report the income and then exclude it entirely on your South Carolina return. For government pensions, you report the income and then claim the partial exemption (up to $10,000 or $3,000 depending on hire date) as a deduction. If you are unsure how to report your specific pension, the South Carolina Department of Revenue publishes instructions for each type, or you can contact a tax preparer familiar with state pension rules.

Frequently Asked Questions

Will I owe South Carolina tax on my military pension?

No. Military pensions are completely exempt from South Carolina state income tax. You will still owe federal income tax on the amount, but South Carolina does not tax it. Report it on your federal return but exclude it from your state return.

I worked for the city for 30 years and retired in 1985. How much of my pension is taxable?

Your pension is not taxable by South Carolina. You were hired before July 1, 1988, so you may have access to for the full exemption on government pensions. You will report the pension on your federal return but exclude it entirely from your South Carolina return.

I have a pension and Social Security. Do I have to file a South Carolina return?

Only if your total income from all sources exceeds the filing threshold for your age and filing status. Social Security is never counted toward that threshold in South Carolina. If your pension alone is below the threshold and you have no other income, you do not have to file. Check the current year's threshold on the South Carolina Department of Revenue website.

My government pension is $4,500 a year and I was hired in 1995. How much is taxable?

You can exclude up to $3,000 per year because you were hired after July 1, 1988. This means $1,500 of your pension is taxable by South Carolina. The amount above $3,000 is subject to state income tax at the current rate.

Does South Carolina tax withdrawals from my 401(k)?

Yes, unless the withdrawals are part of a structured pension payment plan. Lump-sum withdrawals and regular distributions from a 401(k) are taxed as ordinary income by South Carolina. If you are taking distributions as part of a pension annuity (equal payments over your lifetime), those may may have access to for the pension exemption.