If you live and/or plan to retire in South Carolina, staying on top of the latest tax-related developments is essential. Currently, the chances are strong that South Carolina will cut its income tax rate, although the amount and tax structure are still under consideration.
Investment advisors in Greenville, SC, offer tax advice to individuals and families looking for a better solution. Are you one of them?
South Carolina saw no significant tax law changes in 2021. However, Bill SC H3393, introduced on January 12, 2021, would move South Carolina from a graduated income tax to a flat tax starting in 2022. As of this writing, the SC House Ways and Means Committee is still considering the bill.
For single taxpayers living and working in the state of South Carolina:
For married taxpayers living and working in the state of South Carolina:
Bill SC H3393 proposes scrapping the currently graduated income tax brackets and replacing them with a flat tax that would decline over five years:
Retirement plans may need adjustments based on changes for 2022. Luckily, a tax advisor in Greeneville, South Carolina, is well-versed in this arena.
South Carolina professionals planning to retire in the next five years should benefit from the proposed legislation, assuming they would be in the 7% tax bracket following retirement under the current system. The new bill would reduce their taxes by 2.5 percentage points (a 36% decline) by 2025 and save more than $2,000 per $100,000 of taxable income.
For those with flexible timing on claiming Social Security Benefits, the new tax bill reinforces the argument for postponing your claim. Not only will your annual benefits increase for each postponed year (up to age 70), but your taxes on the benefit, if any, will be lower. Currently, you must pay income tax on your Social Security benefits as follows:
If you file a federal tax return as an individual and have an income that is:
If you file a joint return, and you and your spouse have a combined income, that is:
As you will almost certainly pay income tax on 85% of your Social Security benefit, postponing your claim makes sense, especially if you don't need the money to support your lifestyle. By waiting until at least 2025, the additional impact of the proposed state flat tax would be minimized.
If you recently relocated to South Carolina, you too would benefit from the flat tax proposal, assuming you're currently paying 7% state income tax. Should the bill become law, you will be able to adjust your budget by reducing your state tax expenses.
The Governor of South Carolina and the state's House of Representative leadership have recently proposed a cut in the state's top tax bracket from 7% to 6.5% for income above $16,040. The 6%, 5%, and 4% tax brackets would fall to 3%. The proposal would cut taxes for about 1.38 million South Carolina taxpayers.
The proposal is getting mixed reviews. Some find it encouraging, while others criticize it for being too modest.
Not to be outdone, the State Senate has proposed a bill that would cut the top tax rate from 7% to 5.7%. In addition, the proposal would eliminate taxes on military retirement income. Reportedly, the Senate proposal is "gaining traction." Should it pass into law, residents will receive some relief from South Carolina's income tax rate, the highest in the Southeast.
Any effort to reduce the state's taxes may influence more out-of-state pre-retirees to consider South Carolina a retirement destination.
The South Carolina Department of Revenue (DOR) issued Information Letter #21-31, extending temporary relief through March 2022 to employees working from home within or outside the state due to COVID-19. The relief was previously due to expire at the end of 2021.
According to Ernst and Young, "During the COVID-19 relief period, an out-of-state employer is not subject to South Carolina's income tax withholding requirement solely due to a shift from employees working on the employer's premises outside of South Carolina to teleworking from South Carolina. Accordingly, the wages of a South Carolina resident employee temporarily working remotely from South Carolina instead of their normal out-of-state business location are not subject to South Carolina withholding if the employer is withholding income taxes on behalf of the other state."
If you happen to fall into this employee category, you will benefit from the withholding holiday through the first quarter of 2022. Whether the state legislature will extend this relief later is unclear.
This brief look at South Carolina state taxes underscores the importance of working with a tax and investment advisor that understands the federal, state, and local legislative dynamics that directly impact your wealth. Our firm of Carolina retirement planners offers the expertise you need to preserve your wealth and help ensure a comfortable retirement.
Contact us today and learn about all the ways we can help you achieve your financial goals. From stretching your retirement money or to save money quicker – we look forward to creating a comprehensive financial plan from stretching your retirement money or saving money quicker – just for you!