South Carolina H.4216 Cuts Top Income Tax Rate to 5.21%

On March 30, 2026, Governor Henry McMaster signed H.4216 (ratified March 25), replacing South Carolina's three-bracket individual income tax, which carried a top rate of 6.0% in tax year 2025, with a two-bracket structure effective for tax years beginning after 2025: 1.99% on the first $30,000 of taxable income and 5.21% on income above it, computed as 5.21% of the full amount minus $966. The act decouples the state from federal standard and itemized deductions, substitutes a new South Carolina Income Adjusted Deduction (SCIAD), caps the state Earned Income Tax Credit (EITC) at $200, and writes an automatic trigger into Section 12-6-510 that steps the rate down whenever revenue projections grow 5.0% or more, first to a flat 1.99% and then toward zero.

The House concurred in the Senate amendment 71 to 49 on March 10. The Senate had passed the bill 39 to 5 on February 24. The state's Revenue and Fiscal Affairs Office scored the initial cut at roughly $309 million in General Fund revenue for FY 2026-27. Section 6 of the act directs the S.C. Department of Revenue (DOR) to adjust withholding tables to reflect the new structure.

The trigger moves the rate slowly. With the first-year cut scored at $309 million and each trigger step required to move at least $200 million, the merge to a flat 1.99% is a multi-decade project absent sustained surpluses. We estimate a top rate in the low 4s by the end of the decade, and we do not expect the first trigger to fire at the February 15, 2027 determination. Hiring costs change immediately. On a $95,000 hire, South Carolina now collects $702 more than North Carolina.

The New Structure

H.4216 rewrites the rate schedule, the starting point, the standard deduction, and the EITC in one act. Brackets are indexed for inflation going forward. Exhibit 1 sets the tax year 2025 rules against the tax year 2026 rules.

The SCIAD phases out to zero inside a fixed AGI band. H.4216 does not adopt IRC Section 63(b) through (g), so the SCIAD takes the place of the federal standard deduction. Section 12-6-1140(15) allows the deduction in full below the phase-out floor, reduces it proportionally inside the band, and eliminates it at the top. For a single filer, the reduction fraction is AGI in excess of $40,000 divided by $55,000, so the deduction reaches $0 at $95,000. Exhibit 2 shows the bands for each filing status.

How the trigger works. Each year beginning with tax year 2027, if the BEA projects individual income tax collections (net of Trust Fund for Tax Relief credits) to grow at least 5.0%, the top rate is permanently and cumulatively reduced by a percentage projected to cost $200 million, or 25.0% of the recurring income tax revenue surplus, whichever is greater, limited to the projected amount of increased collections, and rounded up to the nearest hundredth of a point. The BEA's forecast in effect on February 15 is final for that year. The enacted text of Section 12-6-510(C)(3) makes $200 million the minimum step whenever 25.0% of the recurring surplus exceeds it. Once the top rate merges into 1.99%, that single rate applies to all taxable income, the $966 subtraction disappears, and the flat rate then steps toward zero under the same mechanism.

Critics focus on the EITC cap and the long-run cost. The Institute on Taxation and Economic Policy estimates that full elimination of the income tax would cost more than $6.6 billion a year, close to 45% of the current General Fund, and that the $200 cap roughly halves the state's EITC spending.

Worked Example: The $95,000 Hire, Two States

At professional-level wages, the SCIAD phase-out gives back most of what the rate cut delivers. Take a program manager earning $95,000 (single, no other adjustments), a typical hire for a Spartanburg-area supplier or a Dorchester County data center operator. Exhibit 3 runs the numbers in both states.

In South Carolina, 5.21% of $95,000 minus $966 equals $3,983.50. The same worker paid more under the prior 6.0% top rate. H.4216 cuts that rate by 0.79 points, but this worker also gets no deduction, because the SCIAD phases out to zero at $95,000. At $60,000 of wages, by contrast, the single filer keeps a $9,545 SCIAD and pays $1,663. The two-bracket structure plus a partial deduction delivers the larger proportional cut in the middle of the wage scale. For workforce-heavy projects, the savings depend on where wages fall in the phase-out bands.

What It Means for Site Selection

Both Carolinas changed their rates between January and March 2026. North Carolina reached 3.99% on January 1, 2026, and South Carolina enacted H.4216 on March 30. Personal income tax is rarely the deciding variable, but it prices executive relocation packages, wage competitiveness, and the "total cost of talent" line in a siting model.

Announced projects will hire under the new schedule. Google's $9 billion cloud and AI infrastructure investment across Berkeley and Dorchester Counties (announced October 13, 2025, running through 2027), for example, brings professional payrolls into the state.

Key dates. The DOR's automatic extension lets 2025 South Carolina returns be filed through October 15, 2026, and H.4216 does not affect those returns. The first BEA trigger determination locks February 15, 2027, and first returns under the new structure are due April 15, 2027. Exhibit 4 lists the full sequence.

What to Do Now

If you are hiring or relocating professional staff in South Carolina, or comparing sites across the Carolinas, the new schedule changes the math. How much depends on wage levels, because the SCIAD phases out between $40,000 and $95,000 for single filers. The first trigger determination is February 15, 2027. If you want a read on what it means for your project before then, reach out to our team.

References

1. South Carolina General Assembly, H.4216, bill history and enrolled text, ratified March 25, 2026; signed March 30, 2026.
2. S.C. Revenue and Fiscal Affairs Office, H.4216 fiscal impact statement (as amended February 24, 2026).
3. N.C. Department of Revenue, Tax Rate Schedules (3.99% for tax years beginning after 2025) and N.C. Gen. Stat. 105-153.5 (standard deduction).
4. Google, "Google announces new $9 billion investment in South Carolina," October 13, 2025.
5. Institute on Taxation and Economic Policy, "South Carolina's Expensive, Regressive Tax Law Will Eliminate State's Income Tax," March 31, 2026.

© Copyright 2026 TC Policy Group, LLC (d/b/a Crawford Partners). The views expressed herein are those of the author(s) and not necessarily the views of Crawford Partners, its management, its subsidiaries, its affiliates, or its other professionals. Crawford Partners is not a law firm and cannot provide legal advice.