South Carolina has passed a major tax reform bill, H.4216, that will take effect for the 2026 tax year.
While many taxpayers will benefit from lower tax rates, the changes to deductions could increase taxes for higher-income households.
Here’s a simple breakdown of what’s changing—and how it may impact you.
Lower Tax Rates for Most Taxpayers
South Carolina is reducing its tax brackets, with the top rate dropping to 5.21%.
Most income levels will see reduced rates, which is good news for many residents. However, the lowest bracket will increase slightly from 0% to 1.99%.
Goodbye Standard Deduction—Hello IAD
South Carolina is no longer following the federal standard or itemized deduction.
Instead, the state will use a new Income Adjusted Deduction (IAD):
- $15,000 for Single filers
- $22,500 for Head of Household
- $30,000 for Married Filing Jointly
Unlike federal rules, these amounts are not currently indexed for inflation.
New Phase-Out Rules (Critical for Higher Earners)
This is one of the most important changes.
The IAD is now phased out at higher income levels:
- Married Filing Jointly begins phasing out at $80,000
- Fully phased out at $190,000
This means many higher-income households will lose part—or all—of their deduction.
No More Itemized Deductions in South Carolina
South Carolina will no longer allow itemized deductions.
This removes tax benefits for mortgage interest, charitable contributions, and medical expenses.
For taxpayers who previously relied on itemizing, this could significantly increase taxable income.
Who Benefits—and Who Doesn’t
Likely to benefit:
- Low to middle-income taxpayers
- Those who typically take the standard deduction
May be negatively impacted:
- Higher-income households
- Taxpayers who previously itemized deductions
What You Should Do Now
If your household income is higher:
- Review your South Carolina withholding
- Consider increasing it slightly
- Plan ahead to avoid underpayment surprises
Final Thoughts
South Carolina’s new tax law is a major shift away from federal conformity. While many taxpayers will see savings, others—especially higher earners—should prepare for potential increases.
As more guidance becomes available, we will continue to monitor updates.
Need Help?
If you’d like help understanding how this affects your specific situation, contact Lembo Accounting Solutions to schedule a consultation.
