South Carolina Income Tax for Business Owners in 2026: 1.99%/5.21% Brackets and the 3% Pass-Through Rate
South Carolina Income Tax for Business Owners in 2026: 1.99%/5.21% Brackets and the 3% Pass-Through Rate
The South Carolina income tax you pay as a business owner depends on how the business is organized, not only on how much it earns. A sole proprietor, an LLC taxed as a partnership, an S corporation, and a C corporation each reach the South Carolina Department of Revenue (SCDOR) through different rules. This guide covers the 2026 individual brackets, the corporate rate, the 3% rate for active business income, and the filing points that catch owners by surprise.
This guide is informational only. It is not legal or tax advice. Your tax treatment depends on your specific facts. Confirm the rules with the SCDOR at dor.sc.gov, and consult a qualified CPA or attorney before you file or make any election.
South Carolina Income Tax Rate for 2026
H.4216, enacted as 2026 Act No. 110 and signed March 30, 2026, sets the individual brackets for tax year 2026. The sc income tax rate is now a two-bracket system:
| Taxable income (tax year 2026) | Rate |
|---|---|
| Under $30,000 | 1.99% |
| $30,000 or more | 5.21%, less a $966 adjustment |
For comparison, the top rate for tax year 2025 was 6.0%. The 2026 top rate of 5.21% is a real reduction for owners above the $30,000 line. Confirm the exact computation, including how the $966 adjustment applies to your return, in the SCDOR instructions for the individual income tax return.
The SC Income Adjusted Deduction
The act also changes where your taxable income starts. The South Carolina return now begins with your federal adjusted gross income (AGI). Instead of carrying over federal deductions, you subtract the SC Income Adjusted Deduction, which is $15,000 for single filers, $22,500 for head of household, and $30,000 for joint filers. The deduction phases out as income rises, so higher earners may receive less than the full amount. Confirm the phase-out schedule with the SCDOR before you use it in any tax projection.
Automatic rate cuts after 2026
The act includes a trigger for future cuts. If revenue projections show growth of 5% or more, the top rate is scheduled to come down automatically beginning in 2027. Do not build a 2027 forecast around a specific rate until the SCDOR confirms how the reduction is calculated.
The 3% Rate for Active Trade or Business Income
For most pass-through owners, the number that matters most is not the bracket rate. South Carolina Code Section 12-6-545 provides a 3% rate on active trade or business income, and owners compute that tax on Form I-335. H.4216 did not amend this rate. Because 3% sits below the 5.21% top rate for 2026, owners whose income qualifies can see a meaningful difference in their state tax.
A few practical points:
- The statute controls the rate. The new bracket table does not change the 3% rate, so a bracket change should not be your only planning input.
- Qualification is the real question. Only active trade or business income qualifies. Income that is passive or investment in nature may be treated differently, so confirm the classification of each income stream with the SCDOR or a CPA.
- Use the current form. Check dor.sc.gov for the current Form I-335 and instructions, because forms are revised from year to year.
Pass-Through Entities and the Entity-Level Election
A pass-through entity (PTE), such as a partnership, a multi-member LLC, or an S corporation, generally reports its income on its owners' personal returns. South Carolina also allows a pass-through entity to make an entity-level election, which moves the tax on the entity's income to the entity itself. The 2026 act did not change this election. Whether it saves money depends on the owners' brackets, whether the income qualifies for the 3% rate, and how the business makes distributions. Model both paths with a CPA before you make the election.
South Carolina Corporate Tax Rate
A C corporation pays South Carolina corporate income tax at 5% of its South Carolina taxable income. Corporations also pay an annual License Fee, and the costs and deadlines are listed below.
| Item | Amount | When it is due |
|---|---|---|
| Corporate income tax | 5% of SC taxable income | With the SC1120 return |
| Initial Form CL-1 License Fee | $25, one time | Within 60 days of doing business or using capital in South Carolina |
| Recurring License Fee | 0.1% of capital and paid-in surplus, plus $15, with a $25 minimum | With the annual report on the SC1120 or SC1120S |
| Articles of Incorporation filing fee | $110 | Filed with the Secretary of State with Form CL-1 |
The annual report is Schedule D, filed with the income tax return. It is due on the 15th day of the fourth month after the end of the business year. For a corporation on a calendar year, that date is April 15. File the Articles of Incorporation through Business Entities Online, where documents are typically returned within 24 to 48 business hours.
South Carolina LLC Taxes
South Carolina does not impose a separate income tax on LLCs as a category. An LLC's South Carolina treatment generally follows its default federal tax classification unless it elects otherwise. In practice:
- A standard LLC that is not taxed as a corporation does not file an annual report and does not pay the corporate License Fee. Formation costs $110 for the Articles of Organization under S.C. Code Section 33-44-203.
- A multi-member LLC taxed as a partnership passes its income through to the members, who report it on their individual returns. The 3% active trade or business rate may apply to qualifying income.
- A single-member LLC is generally disregarded for income tax purposes, so the income is reported on the owner's personal return.
- An LLC that elects corporate taxation must file Form CL-1 with the one-time $25 initial License Fee within 60 days of commencing business, then file the annual report with its SC1120 or SC1120S and pay the recurring License Fee.
Confirm with the SCDOR how your federal tax election carries into South Carolina filings, especially if you changed classification after formation.
South Carolina S Corp Taxes
An S corporation generally passes its income through to its shareholders, who report it on their individual South Carolina returns. The corporation files the SC1120S. Shareholders then pay tax at the individual rates, and the 3% active trade or business rate may apply to qualifying income. Owner pay is a common planning question for S corporations, and a CPA should review how salary and distributions affect both your federal and South Carolina results.
Estimated Payments and Current Deadlines
Owners and entities may need to make estimated payments during the year when they expect to owe tax. The SCDOR sets the thresholds and due dates, so review them on dor.sc.gov before the year begins rather than after a large balance surprises you.
Returns for tax year 2025 that received the automatic extension are due October 15, 2026. An extension of time to file generally does not extend the time to pay, so confirm any amount owed with the SCDOR now.
Local Licenses and Registrations (Not Income Tax)
South Carolina has no general statewide business license. Most cities levy a local business license tax, and only nine counties do: Beaufort, Charleston, Dorchester, Horry, Jasper, Marion, Orangeburg, Richland, and Sumter. The county or city license year runs May 1 to April 30, and the license is due April 30. Renewals are handled at localblrenewal.com. Confirm your local requirements with the city or county where the business operates.
Other registrations you may need:
- Sales tax. If you sell tangible goods, you need a SCDOR Retail License, which carries a one-time, nonrefundable $50 fee per location and is applied for through the Business Tax Application on MyDORWAY. The state sales tax rate is 6%.
- Assumed names (DBAs). South Carolina does not have a state DBA filing. Record the name with your county or municipality, usually on the local business license, and list it as a trade name on your EIN application and SCDOR Business Tax Application. Limited partnerships and foreign corporations may instead file an assumed or fictitious name with the Secretary of State. See the South Carolina Business One Stop DBA guidance.
- Contractors. Commercial contractor licenses apply to work above $10,000, and residential specialty work above $500 requires registration. Confirm the current thresholds with the state agency that licenses contractors before you bid a job.
- Food businesses. Retail food permits come from the South Carolina Department of Agriculture. Some older guides still point to DHEC, which was reorganized in 2024.
Frequently Asked Questions
Does the 3% rate apply to my LLC automatically?
No. The rate applies only to qualifying active trade or business income reported on Form I-335. Your LLC's classification, your income type, and your filing choices all matter, so confirm eligibility before you rely on the lower rate.
Is there a South Carolina corporate franchise tax?
Corporations pay the 5% corporate income tax and the annual License Fee described above. A standard LLC that is not taxed as a corporation does not file an annual report or pay the corporate License Fee.
Did the 2026 act change the pass-through rules?
H.4216 changed the individual brackets and the deduction structure. It did not amend the 3% active trade or business income rate or the entity-level pass-through election.
Where to Get Official Answers
- SCDOR: dor.sc.gov for returns, forms, estimated payments, and the Business Tax Application.
- Secretary of State: sos.sc.gov for entity formation and search, with online filing through Business Entities Online.
- South Carolina Small Business Development Centers: scsbdc.com for small business advising.
South Carolina's rules are straightforward on the surface but interact in ways that cost owners money when they are missed. If you have more than one owner, a corporation and an LLC in the same structure, a planned S corporation election, or a decision about the entity-level election, talk to a CPA before the return is filed. This guide is informational only and is not legal or tax advice.