What’s tax season without a little bit of added stress by the government? More than 1.3 million taxpayers have already filed their tax returns, the state deadline was automatically extended to October 15 while the South Carolina Senate has been debating “to conform or not to conform; that is the question.”
Tax conformity bills are not a new thing and usually do not cause much of an uproar at all. However, with last year’s One Big Beautiful Bill came many recent federal changes that South Carolina (and many other states) have been deciding whether to conform to at the state level. For South Carolina specifically, a bill to completely decouple from the federal tax code in 2027 was also in play – complicating the situation more.
Read on to learn more about how this decision affects you…
What Is Tax Conformity?
Tax conformity simply means that South Carolina adopts certain deductions and rules from the federal tax code. In this case, lawmakers were looking to incorporate provisions from recent federal legislation for the 2025 tax year, including:
- Exempting taxes on up to $12,500 in overtime pay
- Exempting taxes on up to $25,000 in tips
Why This Matters Right Now
As of the end of March, more than 1.3 million South Carolinians have already filed their state tax returns. Yesterday, the Senate rejected the bill to conform to One Big Beautiful Bill Act tax breaks for the 2026 tax season – for many reasons including budgetary, manpower, increased volatility in how it will affect SC taxpayers this year and next…
Not only these factors, but the bill to decouple South Carolina from the federal tax code was signed on Monday – bringing with it a break on income and property taxes.
Disagreement Among Lawmakers
Many lawmakers noted that they were concerned about the financial impact, as conformity would cost the state an estimated $288 million for the year. Others worried about the practical burden on taxpayers and the Department of Revenue, especially since we were so close to the filing deadline (hence the extension on your state taxes!). For one year of conformity, there were many more questions on how the state would proceed if the bill passed – would taxpayers have to amend returns themselves, would the Department of Revenue automatically adjust filings.
Senate members also questioned why conform for one year, when we’re going to decouple the next, resulting in a seemingly tax break for 2026, but an increase for next year, instead of feeling the break lawmakers intended.
Lawmakers instead decided that the state should focus on the long-term instead, to give South Carolina taxpayers more general decreases and allow the state to create its own tax code.
Decoupling from the Federal Tax Code
Up until this point, South Carolina has been among only five states using the federal code as the base for state tax filings. Now, South Carolina will be able to decide what its tax policy is and not beholden to federal actions.
There were two large factors within this bill, property and income taxes.
Lawmakers decided to triple the tax break for homeowners that are 65+, blind, or permanently disabled, if they have lived in their home for more than 5 years. This was designed to prevent more individuals from moving to South Carolina, just to take advantage of the break.
As with most laws, this will be advantageous to some, and problems for others. Each tax bracket will be affected differently – but the idea is that the bill will continue to decrease income tax as the economy grows. Under the bill, income taxes would be cut for nearly 40% of residents.
What Taxpayers Should Do
For now, South Carolina taxpayers should:
- Stay informed about further legislative updates
- Watch for official guidance from the Department of Revenue
Department of Revenue is expected to provide answers on what the rejection of this bill means for filing state taxes in 2026. Stay tuned for more as we navigate into the first year of our own tax code – it should be interesting for us all!
How The Hultquist Firm Can Help
At The Hultquist Firm, we help individuals and businesses shifting legal and regulatory requirements with clarity and confidence. Whether you’re unsure about how these decisions will affect your taxes, how to plan for next year, or protecting your financial interests, experienced tax guidance can make all the difference.
