South Carolina House lawmakers are moving forward with a tax conformity bill that would align the state’s tax code with recent federal changes, a move that could affect hundreds of thousands of residents who have already filed 2025 state returns. The legislation is advancing as the General Assembly continues debating a separate, broader proposal to phase out the state income tax.

The conformity measure would allow South Carolina taxpayers to claim deductions created under the federal “One Big Beautiful Bill,” which President Trump signed into law on July 4, 2025. The federal provisions include a higher standard deduction, an exclusion for tip income up to $25,000, and an exclusion for overtime pay up to $12,500.

South Carolina has not adopted those federal changes for 2025, meaning taxpayers currently cannot use those benefits on their state returns. Under existing rules, filers must add back certain federal deductions when calculating South Carolina taxable income, a step lawmakers said has triggered complaints from constituents who expected the federal tax changes to carry over at the state level.

South Carolina typically passes yearly tax conformity legislation because its state tax calculations reference federal deductions. This year’s conformity debate is unfolding alongside House Bill 4216, a sweeping plan to reduce and eventually eliminate the state income tax.

H.4216 would move away from federal deductions by creating a state income adjusted deduction and would reduce the top income tax rate from 6% to 5.21% at the outset. The bill also sets a 1.99% rate for income up to $30,000 and includes a framework to phase the tax down to zero if state revenue targets are met, a timeline that could stretch for decades.

The cost estimates for H.4216 have grown as the bill moved through the Senate. A fiscal analysis put the original House version’s general fund impact at $119 million, while Senate amendments increased that to nearly $309 million. Lawmakers have also cited more than $247.6 million tied to homestead exemptions, bringing the combined revenue impact of income tax changes and conformity to more than $500 million.

“We’ve heard from many South Carolinians who want the benefits of Trump’s tax law,” said Rep. Bruce Bannister, a Greenville Republican who chairs the House budget committee. He said lawmakers plan to consider tax conformity legislation focused on what he described as responsible reforms.

For 2025 state returns, taxpayers must complete addbacks on the SC1040 for certain federal deductions. Tax software generally applies the adjustments automatically, but manual filers must calculate them.

The addbacks include higher federal standard deductions that range from $750 for single filers to $1,500 for married couples filing jointly. Taxpayers must also add back the overtime premium exclusion, tip income exclusions, an enhanced $6,000 senior deduction for taxpayers age 65 and older, and certain business asset deductions.

The rules also include a state and local tax deduction cap calculated as $40,000 minus property taxes paid, or the lesser of excess itemized deductions over the standard deduction.

If the conformity bill becomes law, taxpayers who already filed could need to amend their state returns to claim refunds. That would require tax software updates and could generate a large volume of amended returns for the South Carolina Department of Revenue to process.

The bill’s outlook in the Senate remains uncertain. Senate Majority Leader Shane Massey, an Edgefield Republican, said there are currently no plans to conform this year.

“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.”

Some lawmakers have argued that conforming now could complicate efforts to restructure or eliminate the income tax, and they want to see how H.4216 develops before tying state rules more closely to federal law. A fiscal impact analysis cited in the debate found that under H.4216, 42.8% of returns would see decreased tax liability, 34.6% would see no change, and 22.6% would see increased liability, with the largest benefits concentrated among filers with incomes up to $30,000 under the 1.99% rate.

Separately, the House has advanced other tax measures aimed at business costs. Lawmakers passed H.5006 on February 12, exempting the first $10,000 of net depreciated business personal property from taxation and removing filing requirements for accounts below that threshold.

Supporters of the bill say it reduces what they describe as double taxation on items such as desks, computers, and tools, which can be subject to sales tax at purchase and then taxed again annually as business personal property.

“Our current system discourages investment and makes it harder for small businesses to grow and create jobs,” said Ben Homeyer, state director for the National Federation of Independent Business. He said small businesses pay sales tax when purchasing equipment and then pay business personal property tax on the same items each year.

NFIB South Carolina said 96% of surveyed small business members support H.5006.

The push for federal conformity, an income tax phaseout, and business property tax changes is moving forward at the same time, raising questions among lawmakers about the combined revenue impact as proposals advance through both chambers.

Source: Lawmakers Work To Bring S.C. Tax Code In Line With Feds | WRDW