South Carolina lawmakers have declined to recognize federal tax deductions from the One Big Beautiful Bill Act for 2025, a decision that will cost state residents an estimated $279 million in tax savings. The Republican-controlled Senate finalized the decision February 24 when it approved a separate plan to restructure the state’s income tax system starting in 2026.
The federal deductions—including provisions for seniors, tipped workers, overtime earners, and auto loan borrowers—can reduce federal income tax bills but will not apply to South Carolina state taxes. Taxpayers who claim these federal deductions must add those amounts back when calculating their state tax liability, resulting in higher state tax bills than if South Carolina had conformed to the federal changes.
How the Decision Affects Taxpayers
The impact hits nearly every South Carolina taxpayer. Approximately 90 percent of taxpayers claim the standard federal deduction, meaning most residents will face add-backs when filing state returns. The standard deduction increased by $750 for individual filers, $1,125 for heads of household, and $1,500 for married couples filing jointly under the federal law.
Specific groups face larger impacts. Taxpayers 65 or older can deduct an additional $6,000 on federal returns but must add that amount back for state taxes. A bartender claiming the “no tax on tips” deduction could reduce federally-taxable income by up to $25,000, which would have saved as much as $1,500 on South Carolina taxes if the state had conformed. Workers claiming overtime deductions can deduct up to $12,500 federally, while those with qualifying auto loans can deduct up to $10,000 in interest.
“I have seen firsthand the effects this non-conformity has had,” said Janet Holt, a Mount Pleasant accountant. “The large add-backs to S.C. taxable income has drastically affected individuals, as well as businesses. It is not only the tips and overtime, it’s the add-backs for the increased standard deduction and the additional deduction offered to many seniors.”
An older couple illustrates the practical math. They could deduct an extra $12,000 from their federally-taxable income for 2025, but would need to add that full amount back to the income South Carolina will tax, effectively erasing any state tax benefit from the federal provision.
Why South Carolina Broke From Federal Rules
South Carolina is among a handful of states that use federally-taxable income as the starting point for calculating state income taxes. This structural relationship means federal deductions typically reduce both federal and state tax liability when the state conforms. The state has historically adopted federal tax code changes, though often not until late in the tax season.
This year marked a departure. Rather than conforming to the One Big Beautiful Bill Act signed into law July 4, 2025, lawmakers chose to pursue their own tax restructuring. The Senate-approved plan would abandon the federal taxable income starting point and instead create new state-specific deductions. The approach makes more income taxable while lowering tax rates.
“At this point, it was one or the other,” said Sen. Larry Grooms. “The debate on conformity ended when the Senate passed the tax cut bill.”
Senate Majority Leader Shane Massey explained the timing concern. “I think we probably need to do a better job of getting the word out that we’re not intending to conform this year because that would set people up for a significant tax increase next year if we did conform,” Massey said. “We don’t want to do that.”
The calculation appears political as well as fiscal. If the state had conformed for 2025, many taxpayers would have received substantial deductions and tax savings, potentially making the 2026 restructuring seem less attractive by comparison. State Rep. Heather Bauer, who introduced a House conformity bill, said colleagues told her the decision came down to “a budget issue.”
Who Benefits Under Each Approach
The competing tax plans favor different income groups. The One Big Beautiful Bill deductions would have particularly benefitted lower and middle-income workers, especially those earning tips and overtime. A tipped worker could have saved up to $1,500 on state taxes through the federal tip deduction alone.
Republican lawmakers said their 2026 restructuring plan will deliver greater overall tax savings than federal conformity—potentially hundreds of millions of dollars more. However, the new income tax plan tilts financial benefits toward higher-income taxpayers through its rate reductions and broader tax base.
The federal law included business provisions South Carolina also declined to recognize. The One Big Beautiful Bill Act restored 100 percent bonus depreciation, allowing property owners and investors to deduct the full cost of qualified property investments upfront rather than spreading deductions across standard depreciation schedules. This provision, made permanent for qualified property acquired and placed into service after January 19, 2025, was designed to incentivize investment in real estate and equipment.
Confusion During Tax Season
The late decision created uncertainty for taxpayers and tax professionals throughout the filing season. Tax season began in January, but questions about federal deductions remained unresolved until the Senate acted February 24. Many taxpayers wondered whether to wait on filing state returns, and tax filing software providers issued cautionary notices to confused customers.
“The state had since July to study the fiscal effects of these tax changes yet they wait until now to make a decision,” Holt said.
This pattern of delayed conformity decisions has been a recurring problem in South Carolina’s tax administration. In 2025, the state did not agree to the prior year’s federal tax rules until late May, well after most taxpayers had filed returns.
John Candido, an 82-year-old Aiken resident, expressed frustration days before the Senate vote. “It would be nice if South Carolina would let its taxpayers know what is happening,” Candido said. “I’d like to put the (tax returns) to bed.”
Bauer said constituents, including tax professionals, had been contacting her office asking what the state planned to do about conformity. The February 24 Senate vote finally provided an answer, though not the one many taxpayers had hoped for.
Taxpayers who have already filed federal returns claiming the One Big Beautiful Bill deductions will need to carefully track those amounts for their state returns. Tax professionals recommend consulting with accountants about whether to itemize or claim the standard deduction on federal returns, as this decision affects South Carolina add-backs and overall tax liability across both jurisdictions.