JOINT BASE CHARLESTON, S.C –
On June 7, 2016, South Carolina Governor Nikki Haley signed H.3147, a tax cut for military retirees, into law. The tax benefits for veterans who receive military retirement pay will phase in gradually over five years. By 2020, an individual taxpayer filing in South Carolina may deduct up to $17,500 of their military retirement income from their total South Carolina taxable income. This deduction increases to $30,000 once the retiree reaches age 65. Surviving spouses receiving military retirement income attributable to their deceased spouses will also be able to claim this tax credit.
Beginning in 2016, the deduction for single retirees under the age of 65 will be $5,900, and the value of the deduction will increase by $2,900 per year until it reaches $17,500 in 2020. For retirees 65 or older, the deduction will start at $18,000 and increase by $3,000 per year until it reaches $30,000 in 2020. For married taxpayers who file a joint federal income tax return, the deduction will be calculated separately as though they had not filed a joint return, so that each individual's deduction will be based on the same individual's retirement income and earned income.
For example, a Master Sergeant who retires with 20 years of service and claiming no additional income could potentially see his South Carolina income tax liability drop from $700 per year to $0. A retired Lieutenant Colonel with 20 years of service could see her South Carolina tax liability fall from $2,500 to $1,200 per year, and further to $360 per year once she turns 65. Individuals who draw their military pensions in South Carolina and continue to work could realize potential tax savings of $1,200 prior to age 65 and $2,100 per year once they reach 65. This new law will affect an estimated 60,000 military retirees or their surviving spouses currently living in South Carolina.