"Welcome to South Carolina" sign along northbound Interstate 85 entering Oconee County, South Carolina from Hart County, Georgia by Famartin is licensed under CC BY-SA 4.0
On June 4, South Carolina Governor Henry McMaster signed the new state budget for 2025-26 budget into law. This budget uses part of the state’s budget surplus to accelerate income tax rate reduction scheduled for the coming years in accordance with the income tax relief package of 2022.
While South Carolina has long been home to a relatively uncompetitive tax system, especially compared to its neighboring states, Gov. McMaster and state legislators have taken significant steps in recent months and years to improve the Palmetto State’s tax code.
“Our booming economy has created annual budget surpluses that have allowed us to cut this tax rate faster and farther than originally anticipated,.”Gov. McMaster said after signing the new budget into law.
In 2022, South Carolina passed the Comprehensive Tax Cut Act, which immediately reduced the top income tax rate in the state from 7% to 6.5%. The law also had budget triggers that reduced the income tax rate by 0.1% every year until the top rate reached 6% in 2027.
The new budget signed into law this week moves South Carolina’s top rate from 6.2% this year to 6% in 2026. . This accelerated income tax relief is projected to save taxpayers $193.5 million.
While the income tax acceleration is great news for South Carolina taxpayers, Gov. McMaster, Speaker Murrell Smith (R), Senate Finance Chairman Harvey Peeler (R), and their colleagues have made clear that enactment of further rate reduction in 2026 is a top priority; As Gov. McMaster noted in his budget statement, “we don’t need to stop at 6% – we should continue cutting or eliminating the personal income tax rate as much as we can, and as fast as we can.”
This past legislative session, the South Carolina House passed H. 4216, a bill that would move the state to a flat tax of 1.99% over the next five years and fully phase out the income tax over the next decade. for all income earners in the state.
The income tax acceleration included in the new state budget and House passage of legislation to fully phaseout the state income tax, which the South Carolina Senate will take up in January, underscores how South Carolina is evolving from tax reform laggard to national leader. If the South Carolina Senate passes H.4216 next year and the additional rate reduction in the North Carolina Senate’s budget proposal becomes law, both North Carolina and South Carolina would have their income taxes scheduled to phase down to 1.99% in the coming years.
