Income tax for individuals
South Carolina Military Retirement Pay: The Full Deduction Explained
South Carolina lets a military retiree deduct all military retirement income included in South Carolina taxable income, at any age, under Section 12-6-1171. Surviving spouses can deduct military survivor benefits and dependency and indemnity compensation the same way. H.4216 did not amend Section 12-6-1171, but the military deduction still reduces the retiree's own general retirement and age 65 deductions.
- 100% of taxable military retirement pay is deductible, regardless of age, since tax year 2022.
- Guard and Reserve retirement pay attributable to inactive service is excluded separately under Section 12-6-1120(7).
- Surviving spouses deduct survivor benefit plan payments and DIC tied to the deceased spouse's service.
- The military deduction reduces the retiree's own $3,000/$10,000 retirement deduction and $15,000 age 65 deduction.
- H.4216 left Section 12-6-1171 unchanged; military retired pay still counts in federal AGI for the SCIAD phase-out.
Who this applies to
- Retirees from active duty in the Army, Navy, Air Force, Marine Corps, Space Force and Coast Guard
- National Guard and Reserve retirees, for pay attributable to active service
- Surviving spouses receiving survivor benefits or DIC related to the deceased spouse's military service
- Military retirees settling in the Charleston area after their last assignment
Who this may not apply to
- NOAA and Public Health Service retirees, per SCDOR
- Civilian Department of Defense or Coast Guard employees, whose pensions use the general retirement deduction
- South Carolina State Guard service and the Merchant Marine
Status for 2026 under H.4216
Section 12-6-1171(A) reads: an individual taxpayer may deduct all military retirement income that is included in South Carolina taxable income. That language dates from 2022, when Act No. 156 and Act No. 228 replaced the earlier capped deductions for tax years beginning after 2021. H.4216 (Act No. 110 of 2026) amended the rate, deduction and filing sections of the Income Tax Act but not Section 12-6-1171, which appears unchanged in the Code as published on scstatehouse.gov. SCDOR's Information Letter #26-20 on the reform lists no change to it. SCDOR had not published the 2026 SC1040 or its instructions as of 25 October 2026, so the 2026 line placement is not yet known.
Who counts as military for this deduction
SC Revenue Ruling #22-11 says the full deduction is for residents who served before retirement in active duty in the Armed Forces (Army, Navy, Air Force, Marine Corps, Space Force and Coast Guard), or in active service in a state National Guard or a reserve component. Qualified military retirement plans are generally paid by the Defense Finance and Accounting Service or the Coast Guard Pay and Personnel Center.
The ruling lists people who do not qualify for the full military deduction, including retirees of the National Oceanic and Atmospheric Administration and the Public Health Service, Guard or reserve retirement not attributable to active service, the South Carolina State Guard, civilian employees of the Coast Guard or Department of Defense, American Red Cross and similar service organizations, and the Merchant Marine. A civilian federal pension can still use the general retirement deduction.
National Guard and Reserve retirement
Guard and Reserve retirees use two rules. Section 12-6-1120(7) excludes from South Carolina gross income retirement benefits attributable to customary annual training, weekend drills and inactive duty training. SCDOR's 2025 instructions compute that excluded share with a ratio: inactive Reserve and Guard time divided by total military time, multiplied by the taxable military retirement on the federal return. That share is subtracted separately and is not included in the military retirement deduction. The rest of the retired pay, attributable to active service, is then deductible in full under Section 12-6-1171.
| Portion of retired pay | South Carolina treatment | Authority |
|---|---|---|
| Attributable to inactive Guard or Reserve time (drills, annual training) | Excluded from SC gross income using the time ratio | Section 12-6-1120(7); Regulation 117-640.3 |
| Attributable to active service | Deducted in full as military retirement income | Section 12-6-1171 |
| Federally penalized early distributions | Not military retirement income | Section 12-6-1171(B) |
Surviving spouses
For a surviving spouse, Section 12-6-1171(B) extends military retirement income to include a retirement benefit plan and dependent indemnity compensation related to the deceased spouse's military service. The survivor applies the deduction the way it applied to the deceased spouse, and the surviving-spouse deduction is in addition to any retirement deductions on the survivor's own retirement income. Amounts claimed as a surviving spouse do not reduce the survivor's own age 65 deduction. SCDOR asks for a statement with each deceased spouse's date of birth when the deduction is claimed for more than one.
How it interacts with the general retirement and age 65 deductions
A military retiree can also claim the general retirement income deduction ($3,000, or $10,000 from the year they turn 65) and, as a resident 65 or older, the age 65 deduction of up to $15,000. Section 12-6-1170(C), however, reduces both of those by the military deduction the retiree claims. In practice, once a retiree's military deduction reaches $15,000, the two general deductions are used up. The reduction does not apply to a civilian spouse, and on a joint return it is applied to each spouse separately.
| Retiree | Military deduction | General retirement deduction | Age 65 deduction |
|---|---|---|---|
| Under 65: $2,000 military + $1,250 civilian retirement | $2,000 | $1,000 ($3,000 cap minus $2,000) | Not yet eligible |
| 65 or older: $13,000 military retirement only | $13,000 | $0 | $2,000 |
| 65 or older: $36,000 military retirement only | $36,000 | $0 | $0 |
| 65 or older: $16,000 military + $8,000 civilian retirement | $16,000 | $0 | $0 |
The last example is the one that surprises people: the $8,000 civilian pension gets no South Carolina deduction because the $16,000 military deduction has already used the retiree's $10,000 retirement cap and $15,000 age 65 allowance. A spouse with their own civilian pension is not affected by this offset.
The 2026 SCIAD and federal AGI
Military retired pay is part of federal adjusted gross income. From 2026, South Carolina starts from federal AGI and phases out the new South Carolina Income Adjusted Deduction once federal AGI passes $40,000 (single), $60,000 (head of household) or $80,000 (joint). Under the wording of Section 12-6-1140(15), retired pay counts toward that phase-out even though it is later deducted in full. A retiree who starts a second career can find the SCIAD shrinking because of pay South Carolina does not tax.
What to bring
- Form 1099-R from DFAS or the Coast Guard for retired pay, and from the plan for any survivor benefit annuity.
- For Guard and Reserve retirees, the statement of service showing active and inactive time, to compute the excluded share.
- Form 1099-R for any civilian pensions or IRAs, so the offset can be computed for each spouse.
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Sources
- SC Code of Laws, Title 12, Chapter 6 (Income Tax Act)
- SC General Assembly — H.4216 (Act No. 110 of 2026), ratified text
- SCDOR — Information Letter #26-20, Individual Income Tax Reform (31 Aug 2026)
- SCDOR — SC Revenue Ruling #22-11, Age 65, General and Military Retirement Deductions
- SCDOR — 2025 SC1040 Individual Income Tax Instructions
- SCDOR — Retirees: lower your Individual Income Tax bill with these five tips
South Carolina publishes new guidance and local governments change their rates, so check the source pages for anything that has moved since the date above. The information on this site is general in nature and is not tax, legal, or accounting advice for your situation. Tax law changes and the right answer depends on facts we would need to review with you. Please speak with a qualified professional before acting on anything you read here.
Questions people ask about this
Does South Carolina tax military retirement pay?
Not when it is included in South Carolina taxable income and comes from a qualified military retirement plan. Section 12-6-1171 lets the retiree deduct all of it, at any age. H.4216 did not amend that section for 2026.
Can a surviving spouse deduct a military survivor benefit annuity?
Yes. For a surviving spouse, South Carolina treats a retirement benefit plan and dependent indemnity compensation related to the deceased spouse's military service as military retirement income. The survivor deducts it as it applied to the deceased spouse, in addition to deductions on the survivor's own retirement income.
Do National Guard and Reserve retirees get the full deduction?
The portion of retired pay attributable to inactive Guard or Reserve time is excluded under a separate rule using a time ratio. The portion attributable to active service is deductible in full as military retirement income.
Can I take the military deduction and the age 65 deduction?
Yes, but the age 65 deduction and the general retirement deduction are both reduced by the military deduction you claim. If your military deduction is $15,000 or more, there is usually nothing left of either.
Keep reading
- SC retirement and age 65 deductionsSouth Carolina lets the original owner of a qualified retirement plan deduct up to $3,000 of taxable retirement income a year, rising to $10,000 from the year they turn 65. Separately, residents 65 and older get a deduction of up to $15,000 each against any kind of income, reduced by the retirement deduction they claim. H.4216 did not amend Section 12-6-1170, which holds both deductions.
- The SC Income Adjusted DeductionThe South Carolina Income Adjusted Deduction (SCIAD) replaces the federal standard and itemized deductions on South Carolina returns from tax year 2026. It is $15,000 for single or married filing separately, $22,500 for head of household and $30,000 for married filing jointly or surviving spouse, and it phases out as federal AGI rises, disappearing at $95,000, $142,500 and $190,000 respectively.
- Who counts as an SC residentFor income tax, a South Carolina resident is anyone domiciled here: the place you treat as your permanent or indefinite home and intend to return to. There is no day-count test, so time spent in or out of the state does not settle the question on its own. Once you are domiciled here, you stay a resident until you abandon South Carolina and set up a new permanent home somewhere else.
- Moving to SC: a tax checklistThe tax side of a move to South Carolina comes down to a handful of steps: pin down the date you became domiciled here, get South Carolina tax withheld or paid from that date, apply for the reduced property tax ratio on your new home, and plan your first return as a part-year resident. From 2026 the state return also works differently from the federal one, starting from federal AGI with South Carolina's own deduction and two tax rates.
- The SC 529 plan deductionSouth Carolina lets you deduct contributions to its own Section 529 college savings plan, Future Scholar, up to the plan's maximum account limits, with no separate state dollar cap. Contributions made during 2026 or by April 15, 2027 can be deducted on the 2026 return. H.4216 did not change this deduction, so it still sits on top of the new SC Income Adjusted Deduction.
- SC 44% capital gains deductionSouth Carolina lets individuals, estates and trusts deduct 44% of their net capital gain, which is net long-term gain (assets held more than one year) minus net short-term loss. At the 2026 top rate of 5.21%, that taxes the remaining 56% of a long-term gain at an effective rate of about 2.9%. H.4216 did not amend Section 12-6-1150, but the full gain still counts in federal AGI for the new SCIAD phase-out.
- SC estimated tax in 2026South Carolina expects estimated payments from anyone who will owe $100 or more after withholding, but the 2026 SC1040ES worksheet was printed before H.4216 and still uses the old rates and starting point. For 2026, estimate from federal AGI using the new SCIAD and the 1.99% and 5.21% rates. You avoid an underpayment penalty if your withholding and timely estimates cover at least 90% of your 2026 tax or 100% of your 2025 tax, rising to 110% if your 2025 AGI was over $150,000.
- South Carolina tax guideHow South Carolina taxes income, businesses and property, and what the Charleston area adds on top, with the state or local source beside every rule.
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