The South Carolina Senate Finance Committee advanced two separate tax bills Tuesday that would reduce income taxes for some residents and expand property tax relief for homeowners age 65 and older. The committee moved forward the House passed income tax bill without changes and advanced a separate measure to expand the state’s Homestead Exemption. Together, the proposals would reduce state revenue by an estimated $378 million in the fiscal year that begins July 1, 2026.
The Income Tax Restructure
The income tax bill, H.4216, would restructure South Carolina’s current progressive system into a two tier model starting with the 2026 tax year. Under the bill, residents would pay 1.99% on taxable income up to $30,000 and 5.39% on income above that threshold.
South Carolina’s top marginal income tax rate is 6%. State officials have said the effective rate residents pay averages about 3%. Supporters of the proposal cited comparisons to other states in the region, including North Carolina, which reduced its flat rate to 3.99% effective January 1, 2026, and Arizona, which maintains a 2.5% rate.
The bill includes automatic triggers for additional rate reductions if state income tax revenue increases by at least 5% annually. Under the trigger mechanism, rates would be reduced using $200 million or 25% of the surplus each year until the top rate reaches 1.99%, then continue moving toward elimination. Tax policy analysts said South Carolina could reach a flat 1.99% rate within five years if revenue growth meets the trigger requirements.
The measure would also change how South Carolina aligns its tax base with federal law. South Carolina is one of five states that base state income taxes on federal taxable income rather than adjusted gross income, which means certain federal changes can flow through to state calculations. The bill would decouple from that approach and introduce a South Carolina Income Adjusted Deduction that phases based on adjusted gross income and filing status.
Sen. Sean Bennett, a Summerville Republican and financial planner, said the change would allow South Carolina to set its own tax policy rather than automatically following federal changes.
Who Pays More, Who Pays Less
The state Revenue and Fiscal Affairs Office reported that about 45% of filers currently pay no South Carolina income tax. Under the proposed structure, the office estimated that about 40% of residents would see a tax cut, 35% would pay the same amount, and 27% would pay more.
An updated financial analysis released in January 2026 estimated the income tax bill would reduce state revenues by about $119 million in its first full year.
Sen. Wes Climer, a Rock Hill Republican running for Congress, said he opposed any proposal described as a tax cut that results in some taxpayers paying more. Bennett said that some filers projected to pay more previously paid no state income tax.
Sen. Ronnie Sabb, a Greeleyville Democrat, cast the only vote against the income tax bill in committee and said he wanted additional discussion.
Tripling The Senior Property Tax Break
A separate bill advanced by the committee would expand South Carolina’s Homestead Exemption, which has been in place since 2000. Under current law, homeowners who are age 65 and older, blind, or permanently disabled do not pay property taxes on the first $50,000 of assessed value if they have lived in the home for at least one year.
The proposal would increase the exempt amount to $150,000 and raise the residency requirement to five years. Homeowners who already qualify under the current one year requirement would be grandfathered in and would continue receiving the existing benefit.
Property taxes are collected by counties and used to fund local services. The bill would require the state to reimburse counties for lost revenue, which was estimated at $259 million per year.
Sen. Harvey Peeler, the Gaffney Republican who chairs the Senate Finance Committee, said property taxes generate frequent constituent concerns, including from older homeowners.
Sen. Greg Hembree, a Republican who represents Horry County, said the longer residency requirement would address concerns about new residents receiving the exemption immediately.
Debate Over Who Benefits Most
Committee members considered alternative versions of the property tax proposal, including lowering the qualifying age to 60 and increasing the exemption to $100,000. The committee kept the qualifying age at 65 and increased the exemption amount to $150,000.
Sen. Tom Corbin, a Greenville County Republican, said he supported a lower qualifying age and a smaller exemption amount. Corbin and Bennett voted against the property tax bill, while the remaining committee members voted in favor.
Budget Pressures And Competing Priorities
State fiscal advisers projected an additional $734 million in revenue for the fiscal year beginning July 1. Legislators also have access to a $1.7 billion surplus from higher than expected collections and unspent reserves from prior years. Officials have said the surplus is generally designated for one time spending rather than ongoing programs.
State agencies and colleges have requested funding beyond the combined amount available from new revenue and surplus funds. The two tax bills would reduce the amount available by an estimated $378 million.
Peeler said he was not prepared to identify which funding requests might not be approved.
Regional Tax Competition
Several states enacted income tax reductions in 2026, and eight states do not levy an income tax. States including Mississippi, Oklahoma, Kentucky, West Virginia, and Indiana have adopted mechanisms that reduce income tax rates over time based on revenue or other triggers.
Supporters of the South Carolina proposal cited North Carolina’s earlier use of revenue based triggers. Analysts said South Carolina’s trigger structure could result in a lower flat rate than neighboring states if the revenue thresholds are met.
What Happens Next
Both bills now move to the full Senate. If the Senate approves the measures without changes, they would go to Gov. Henry McMaster for consideration. If the Senate amends either bill, the House would need to approve the changes.
The income tax restructuring would apply beginning with the 2026 tax year, which would affect returns filed in 2027. The Homestead Exemption expansion would begin in the fiscal year starting July 1, 2026.