Does South Carolina Tax Overtime in 2026?
Yes - South Carolina taxes overtime premium for 2026. SC Information Letter #26-20 lists the "Overtime deduction" among the federal deductions South Carolina does not adopt for tax years beginning after 2025 (Act 110 of 2026). The SC Income Adjusted Deduction replaces the federal deductions. For 2025 returns, the federal deduction did reduce SC income.
How South Carolina's Overtime Tax Treatment Works
What changed in 2026: Act 110 of 2026 (H.4216) decoupled South Carolina from federal standard and itemized deductions. It added S.C. Code §12-6-50(21), effective March 30, 2026, which provides that Internal Revenue Code "Section 63(b) through (g)...specifically not allowed or adopted" by South Carolina. SC taxable income now begins with federal AGI, followed by the SC Income Adjusted Deduction.
SCDOR's list: the statute does not name individual deductions. Information Letter #26-20 names the deductions dropped as a result, including the senior deduction, the qualified tip deduction, and the overtime deduction.
2025 vs 2026: the 2025 SC1040 started from federal taxable income, so the federal deduction lowered 2025 SC income. From 2026 it does not.
Federal Overtime Deduction Quick Reference
| Detail | Value |
|---|---|
| IRC Section | §225 (OBBBA) |
| Maximum deduction | $12,500 overtime ($25,000 MFJ) |
| Deduction type | Above-the-line (Schedule 1-A) |
| FICA still applies? | Yes (Social Security 6.2% + Medicare 1.45%) |
| MFS eligible? | No (MFJ or Single/HoH only) |
| Effective dates | Jan 1, 2025 – Dec 31, 2028 |
| South Carolina treatment | Does not conform |
| What qualifies? | Overtime premium only (the 0.5x above regular rate), FLSA non-exempt employees |
Worked Examples Comparing Federal and South Carolina Treatment
Example 1: Warehouse worker with $8,000 in overtime premium (single filer, 12% federal bracket)
Qualifying overtime premium: $8,000
Overtime deduction claimed: $8,000 (capped at $12,500)
Estimated federal tax savings: $960.00
South Carolina return:
For 2026 South Carolina does not adopt this deduction, so the full $8,000 stays in SC income. Where SC taxable income is $30,000 or more, that is about $417 of SC tax at 5.21%.
Example 2: Nurse at the single-filer cap, $12,500 deducted (single filer, 22% federal bracket)
Qualifying overtime premium: $12,500
Overtime deduction claimed: $12,500 (capped at $12,500)
Estimated federal tax savings: $2,750.00
South Carolina return:
The federal deduction saves federal tax only. On the 2026 SC return the $12,500 is still income, about $651 of SC tax at 5.21%.
South Carolina Notes
2026 rates: 1.99% on SC taxable income up to $29,999; 5.21% of taxable income minus a fixed subtraction at $30,000 or more.
Withholding: SCDOR's employer withholding tables (WH-1603) had not been revised for Act 110 as of September 2026.
Related Tools
- No Tax on Overtime Calculator - calculate your federal overtime deduction
- South Carolina Tax Guide - full state tax overview
- South Carolina Paycheck Calculator
- Does South Carolina Tax Tips?
- W-2 Code TP: Tips Reporting Guide
- W-2 Code TT: Overtime Reporting Guide
- All 51 States: Tips & Overtime Tax Map