The Senate passed its version of H.4216 Income Tax bill, and it’s headed back to the House. We’ll have to wait and see if the House accepts the Senate’s changes or sends the bill to a conference committee.
Let’s go through the Senate version dated 2/26/26.
The New Rates
Starting in tax year 2026, South Carolina moves to two income tax brackets:
Income up to $30,000 is taxed at 1.99%.
Everything above $30,000 is taxed at 5.21% minus $966.
Why subtract $966?
Pull up a chair. This one has a tricky explanation.
Take $40,000. At 5.21%, the first $30,000 = $1,563. At 1.99%, it should be $597. The difference: $1,563 − $597 = $966. That's the number the formula subtracts to correct the overcharge.
Don’t you love the tax code?
Anyway, let’s continue.
What is the plan for 0% income tax, maybe… one day?
Look at Section 1. Section 12-6-510 (C), items (2), (3), and (4).
Starting in 2027, if income tax revenue grows by at least 5% over the prior year, the top tax rate will automatically drop.
Each time the trigger hits, the rate drops by enough to reduce collections by $200 million or 25% of the surplus above that 5% threshold, whichever is larger. If the surplus exists but is less than $200 million, the reduction is limited to the actual surplus.
The Board of Economic Advisors makes the projections. The forecast set by February 15 each year is the one that matters. Any changes after that date don’t affect that year’s decision.
The rate will keep dropping in steps until the top rate matches the bottom rate, creating a 1.99% flat tax on all income. After that, the process continues, lowering the 1.99% rate toward zero.
Next, goodbye Federal Deduction, hello South Carolina Income Deduction.
Section 3. Section 12-6-1140
The bill decouples South Carolina entirely from the federal standard deduction. In its place comes the SCIAD, the South Carolina Income Adjusted Deduction:
Single filers get $15,000.
Married filers get $30,000.
Head of household gets $22,500.
These amounts phase out as your income increases. For single filers, the phase-out starts at $40,000 and disappears completely at $95,000. Married filers phase out between $80,000 and $190,000. Heads of household between $60,000 and $142,500. The more you earn in those ranges, the less deduction you get.
The bill includes no automatic inflation adjustment, so unless the General Assembly acts, the amounts stay put.
The decoupling from federal tax law was called “a monumental move” on the Senate floor.
Sure, decoupling from the feds is a conservative principle worth supporting in theory. But how much better off are we trusting the state to tax us less?
A side note on deductions. Conservatives shouldn’t rush to beg for deductions. Deductions are tools lawmakers use to reward certain behaviors or penalize others.
SECTION 7. Section 12-6-3632
Under current law, the state Earned Income Tax Credit (EITC) is 125% of the federal EITC you qualify for, with no dollar limit. You multiply your federal credit by 125% to get your state credit, up to your tax liability. It’s nonrefundable, so it can only reduce your tax to zero.
Under H.4216, the formula remains 125% of the federal EITC, but is capped at $200. The most you can claim at the state level is $200.
That is pretty much the gist of this version.
Here are a few things to keep in mind as you read H.4216.
Will we ever pay 0% income tax?
Maybe. The automatic rate reduction only happens if income tax revenue grows by at least 5% from one year to the next. Supporters will say that growth comes from population growth or a strong economy. No matter how you describe it, revenue growth means the state collected more of your money than the year before.
Who controls the SCIAD going forward?
The General Assembly will be responsible for increasing or decreasing the deduction amount.
Q: What is the real fiscal cost of this version?
We don’t know yet. As of the date of this article, the updated fiscal impact statement has not been published.
So, in conclusion, if you run the numbers using the rates proposed in this bill and come up with savings, understand that those savings are an illusion. Legislatures tend to spend whatever comes in, and sometimes even more. South Carolina's budgets keep growing. The $15.4 billion general fund plan already underway is proof of that.
True conservative tax relief begins with real limits on government, not just hoping for endless economic growth and collecting more of our money. Lawmakers should focus on cutting spending, taxing less, and prioritizing protecting citizens' right to keep more of their money. Otherwise, the tax savings in this plan are an illusion.
Disclaimer: The views expressed in this article are those of the author and do not constitute legal or professional advice. ConservaTruth assumes no liability for any actions taken based on this content. Readers are encouraged to review the bill text themselves. Read more.
Subscribe to ConservaTruth's Email Newsletter for curated insights on South Carolina's legislative activities and conservative viewpoints, delivered straight to your inbox! With vetted and easy-to-understand information, our newsletter empowers you to become an informed and engaged citizen, actively participating in safeguarding our cherished Constitutional values. Don’t miss out on crucial updates—join our community of informed conservatives today!
Comments