Blog · 16 October 2026

South Carolina Income Tax 2026: Two Brackets, SCIAD and IRC Conformity After Information Letter #26-23 — What US CPA Firms Should Check

By Keshav Bansal, CA

South Carolina’s income tax rules for tax years beginning after 2025 look familiar on the surface—still an individual return that starts from a federal number—but the starting point and the deduction stack changed. In SC Information Letter #26-23 (dated October 1, 2026), the South Carolina Department of Revenue (SCDOR) summarized Act 110 (H.B. 4216): two brackets, a new South Carolina Income Adjusted Deduction (SCIAD), and selective IRC conformity that drops IRC §63(b)–(g). SCDOR’s Individual Income Tax page flags the same package under “New for tax year 2026.” For US CPA firms with multi-state clients, this is a classic conformity lesson: when a state decouples from the path between federal AGI and federal taxable income, federal standard/itemized and related TI deductions stop flowing through automatically.

Do not confuse this letter with South Carolina’s Education Freedom / scholarship SGO work under Executive Order 2026-23 and IRC §25F. That is a different program; see our Education Freedom Tax Credit §25F guide. IL #26-23 is about rates, SCIAD and the SC taxable-income base.

Two brackets for 2026 (Act 110, Sec. 1 / §12-6-510(C))

Per IL #26-23, for tax years beginning after 2025 the tax on South Carolina taxable income of individuals, estates and trusts (and other non-corporate, non-exempt entities) is computed as follows:

• $0–$29,999: 1.99% × taxable income
• $30,000 or more: (5.21% × taxable income) − $966

Bracket amounts are adjusted annually using the Chained Consumer Price Index under SC §12-6-520. For context, Proviso 117.191 kept the top marginal rate at 6% for the 2025 tax year. Beginning with 2027, IL #26-23 describes a Board of Economic Advisors (BEA) revenue trigger: if individual income tax revenues (minus Trust Fund for Tax Relief credits) are projected to grow by at least 5% year over year, the top rate can be reduced permanently and cumulatively toward 1.99%, then eventually toward a single rate of 0%. Treat that path as a summary of the letter’s trigger mechanics—do not invent intermediate rate schedules for client models until SCDOR or BEA publishes the year’s figure.

Decoupling from IRC §63(b)–(g): start with federal AGI

Section 2 of Act 110 amends SC §12-6-50 to list IRC §63(b) through (g) as Internal Revenue Code sections not adopted. Those subsections are the federal deductions that take you from adjusted gross income to taxable income. IL #26-23 states the result plainly: because South Carolina decoupled from those federal deductions, South Carolina taxable income calculation begins with federal AGI instead of federal taxable income.

That is the review risk for firms that still think of SC as a “federal taxable income plus modifications” state. Federal standard deduction, itemized deductions and other §63 TI mechanics no longer ride into the SC base. Clients who itemize federally for SALT, charitable or mortgage interest reasons—or who rely on federal TI structure in multi-state worksheets—need an SC-specific path. Compare how other jurisdictions rewrite the base when they chase high earners or conformity politics in our note on state millionaire-tax trends in Rhode Island and Washington, and how entity-level elections interact with the federal SALT cap in our PTET / SALT cap OBBBA guide.

SCIAD amounts and phaseouts (Sec. 3 / §12-6-1140)

In place of the federal standard deduction flowing through, Act 110 adds the South Carolina Income Adjusted Deduction. Per IL #26-23, SCIAD depends on federal filing status and federal AGI:

• Single or married filing separately: $15,000; phaseout for AGI $40,001–$94,999 by (AGI − 40,000) / 55,000; $0 at $95,000+
• Head of household: $22,500; phaseout for AGI $60,001–$142,499 by (AGI − 60,000) / 82,500; $0 at $142,500+
• Married filing jointly or surviving spouse: $30,000; phaseout for AGI $80,001–$189,999 by (AGI − 80,000) / 110,000; $0 at $190,000+

Any reduction amount that is not a multiple of $10 is rounded down to the next lowest $10. SCDOR says it will provide an online calculator (the IIT page notes a MyDORWAY tool later in the year). Until that ships, build the fraction and rounding into review workpapers—especially for AGI near the cliffs.

EITC cap, filing thresholds and nonresidents

EITC (Sec. 7 / §12-6-3632). South Carolina’s earned income tax credit remains 125% of the federal credit under IRC §32, but IL #26-23 states the credit allowed in a year is now capped at a maximum of $200.

Filing thresholds (Sec. 4). SC §12-6-4910(1) was rewritten around SCIAD and the age-65 deduction. Examples from the letter: individuals under 65 filing single or MFS must file if South Carolina gross income is over $15,000; under-65 HOH over $22,500; joint returns with both spouses under 65 over $30,000. Higher thresholds apply when one or both spouses are 65 or older (for example, both 65+ joint over $60,000). Use the letter’s full list when screening return requirements—do not assume federal filing alone decides SC.

Nonresidents (Sec. 5). For a nonresident individual, SCIAD is reduced in the same proportion as South Carolina adjusted gross income bears to federal adjusted gross income. Part-year and nonresident allocations therefore touch the deduction, not only the income lines.

Act 110’s effective date in IL #26-23 is May 30, 2026, and the income-tax package first applies to tax years beginning after 2025. Withholding tables are to be adjusted with the Revenue and Fiscal Affairs Office (Sec. 6).

What US CPA firms should check

• Confirm the starting point on every 2026 SC individual / estate / trust return: federal AGI, then SC modifications and SCIAD—not federal taxable income.
• Model SCIAD for clients near $40k / $60k / $80k AGI phaseout starts and the $95k / $142.5k / $190k zeros; apply the $10 rounding rule.
• Revisit multi-state worksheets that assumed conformity to federal TI; flag itemizers and QBI-heavy filers whose federal TI deductions no longer map.
• Cap SC EITC at $200 even when 125% of federal would be higher.
• Screen filing need off SC gross income + age/status thresholds in IL #26-23, and prorate SCIAD for nonresidents.
• Separate topics: scholarship SGO / §25F planning is not this letter; keep EO 2026-23 work on a different checklist.

States choose rolling conformity, fixed-date conformity or selective non-adoption lists. South Carolina’s addition of §63(b)–(g) to the “not adopted” list is selective decoupling with a large practical effect: the federal path from AGI to TI is no longer South Carolina’s path. Brief partners once, then bake SCIAD and the two-bracket formula into organizers before 2026 season.

Where Tax Brew fits

Multi-state individual work multiplies organizer fields, AGI bridges and state-only deductions like SCIAD. Tax Brew provides bookkeeping, cleanup and tax prep support for US CPA firms, so source documents and workpapers arrive organized; your team keeps the advice and sign-off. See our services, or email info@taxbrewglobal.com.

Sources: SCDOR SC Information Letter #26-23 — Tax Legislative Update for 2026 (Oct. 1, 2026); SCDOR Individual Income Tax — New for tax year 2026; Act 110 (H.B. 4216), summarized in IL #26-23. General information, not tax or legal advice. Always confirm against the full statute and current SCDOR forms/instructions.