South Carolina does not tax most pension income, but the rules depend on your age and the source of your pension

South Carolina excludes most pension and retirement distributions from state income tax if you are 59½ or older. This includes pensions from your employer, military pensions, and distributions from 401(k)s and IRAs. However, if you are under 59½, South Carolina taxes those same distributions as ordinary income. The state also taxes certain types of retirement income differently, and federal tax rules may still explore even when South Carolina does not tax you.

The key is understanding which pensions may have access to for the exclusion and whether you meet the age requirement. A pension that qualifies in South Carolina might still be taxed by the federal government, so you need to plan for both.

Key Takeaways

  • South Carolina does not tax pension income if you are 59½ or older, regardless of the amount.
  • If you are under 59½, South Carolina taxes pension distributions and retirement account withdrawals as regular income at the state level.
  • Military pensions, federal employee pensions, and teacher pensions all receive the same age-based exclusion in South Carolina.
  • The federal government may still tax your pension income even though South Carolina does not, so check your federal tax situation separately.
  • Social Security benefits are not taxed by South Carolina, but they may be taxed federally depending on your total income.

Who qualifies for the pension tax exclusion in South Carolina

You may have access to for South Carolina's pension exclusion if you are 59½ or older and receive income from a may have access to pension or retirement plan. may have access to sources include traditional pensions from an employer, 401(k) distributions, 403(b) distributions, IRA distributions, and military retirement pay. The exclusion applies to the full amount of your pension income—there is no cap or limit on how much you can exclude.

The age threshold is strict: you must have reached 59½ by December 31 of the tax year you are filing for. If you turn 59½ on January 1, you may have access to for that year. If you turn 59½ on December 31, you do not may have access to until the following year. South Carolina does not offer a partial exclusion for people who are close to the age threshold.

Pension income under age 59½

If you are under 59½ and receiving pension distributions, South Carolina taxes that income at your regular state income tax rate. This applies even if you took an early withdrawal from a retirement account or received a lump-sum pension payout. The state does not distinguish between early withdrawals and regular distributions—both are taxed the same way.

You may also owe a federal penalty of 10 percent on early withdrawals from IRAs and 401(k)s if you have not met a federal exception (such as disability or a series of substantially equal payments). South Carolina does not impose its own early withdrawal penalty, but the federal penalty still applies. This is separate from your state income tax bill.

Military pensions and federal employee pensions

Military retirement pay receives the same treatment as civilian pensions in South Carolina. If you are 59½ or older, your military pension is not taxed by the state. If you are under 59½, it is taxed as ordinary income. There is no special military pension exclusion or reduced rate.

Federal employee pensions (FERS and CSRS) are also covered by the age-based exclusion. Teachers who receive a pension from a state or local retirement system may have access to as well. The source of the pension does not matter—only your age and whether the income comes from a may have access to retirement plan.

Social Security and other retirement income

South Carolina does not tax Social Security benefits at the state level, regardless of your age or income. This applies to retirement benefits, survivor benefits, and disability benefits paid by Social Security. You will never owe South Carolina state tax on Social Security income.

However, the federal government may tax your Social Security benefits depending on your total income. If your combined income (adjusted gross income plus half your Social Security benefits) exceeds certain thresholds, up to 85 percent of your benefits may be subject to federal tax. South Carolina's exemption does not change your federal tax situation.

How to report pension income on your South Carolina tax return

When you file your South Carolina return, you report your pension income on Form SC 1040 (the state income tax return). If you are 59½ or older, you claim the pension exclusion by entering the amount on the appropriate line and reducing your taxable income. You will need documentation from your pension provider showing the amount you received during the year—usually a 1099-R form.

If you are under 59½, you report the full amount of your pension income as taxable income. You cannot reduce it by the exclusion. Keep your 1099-R and any other pension statements with your tax records in case South Carolina requests verification.

Many people file both a federal return and a South Carolina return. Your federal return may show tax owed on pension income even though your South Carolina return shows none. This is normal and expected—the two tax systems operate independently.

Planning ahead if you are approaching 59½

If you are close to age 59½, you may want to time large withdrawals or pension distributions to take advantage of the exclusion. For example, if you turn 59½ in June, you might delay a large IRA withdrawal until July to avoid six months of state tax on that amount. This strategy works best if you have control over the timing of your distributions.

If you receive a mandatory distribution from a pension plan or a required minimum distribution (RMD) from an IRA, you cannot control the timing. RMDs begin at age 73 (as of 2023, under current federal law) and must be taken whether or not you need the money. Once you reach 59½, those RMDs are not taxed by South Carolina.

Consider meeting with a tax professional or financial advisor if you have multiple income sources or are planning a large withdrawal. They can help you understand both your South Carolina and federal tax obligations and may identify ways to reduce your overall tax bill.

Frequently Asked Questions

Does South Carolina tax my 401(k) withdrawal?

If you are 59½ or older, no. If you are under 59½, yes—South Carolina taxes it as ordinary income at your regular state tax rate. You may also owe a federal 10 percent penalty on early withdrawals unless you meet a federal exception.

What if I moved to South Carolina after I retired?

South Carolina taxes based on where you live on December 31 of the tax year. If you moved to South Carolina before that date, you are a resident and the pension exclusion applies (if you are 59½ or older). If you moved after December 31, you are not a resident for that year and must file as a part-year resident.

Is my teacher pension taxed differently than other pensions?

No. Teacher pensions from state or local retirement systems receive the same age-based exclusion as any other pension. If you are 59½ or older, it is not taxed by South Carolina.

Do I have to pay federal tax on my pension if South Carolina does not tax it?

Possibly. South Carolina and the federal government have separate tax rules. Your pension may be exempt from South Carolina tax but still subject to federal tax. You must file a federal return and follow federal rules regardless of your South Carolina tax situation.

What happens to my pension exclusion if I move out of South Carolina?

The exclusion only applies while you are a South Carolina resident. If you move to another state, you must follow that state's tax rules for pension income. Some states also exclude pension income; others tax it fully. Check the rules in your new state.