Governor Henry McMaster has officially signed H. 4216 into law, a sweeping tax reform bill designed to simplify South Carolina’s tax code and provide hundreds of millions of dollars in relief to residents.
Starting in tax year 2026, the state will transition from a three-bracket system to a more streamlined two-rate structure. Under the new law, taxable income up to $30,000 will be taxed at 1.99%, while income above that threshold will be taxed at 5.21%—a significant drop from the previous 6% top rate. This shift is projected to save taxpayers roughly $325 million and reduce tax liability for nearly 43% of South Carolinians.
To protect lower-earning households, the legislation introduces the South Carolina Income Adjusted Deduction (SCIAD). This new deduction is designed to phase out as income increases, ensuring the most substantial relief is directed toward those who need it most.
A key feature of the bill is a long-term framework for future cuts. Beginning in 2027, if state individual income tax revenues grow by at least 5%, tax rates will automatically decrease. This process is intended to continue annually until the top rate hits 1.99%, with the ultimate goal of eliminating the state personal income tax entirely.
The bill also changes how state taxes are calculated by using federal adjusted gross income as a starting point, removing various federal itemized deductions while preserving existing South Carolina-specific tax breaks.
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