South Carolina Governor Signs Law Cutting Income Tax and Boat Property Taxes

(SOUTH CAROLINA) — South Carolina residents will see lower income tax rates and reduced boat property taxes after Governor Henry McMaster signed H.4216 and H.3858 into law on March 31, 2026.

The two measures bring immediate state tax relief for tax year 2026, which most filers will report on returns filed in 2027. They also arrived alongside the state’s $15.4 billion budget package.

For immigrants, visa holders, and newly arrived families in South Carolina, the main point is simple. If you are a South Carolina resident or part-year resident, these changes may affect your 2026 state return even if your federal filing status is more complicated.

Federal tax rules still control your Form 1040 or Form 1040-NR filing. For federal residency rules, see IRS Publication 519 and the IRS international taxpayers page.

What changed

H.4216 changes South Carolina’s individual income tax structure. It moves the state from a progressive rate system with a 6.0% top rate toward a two-bracket system and, over time, a possible 1.99% flat tax if revenue conditions are met.

H.3858 cuts boat property taxes. It creates a “one boat, one bill” system, gives a 50% exemption on the fair market value of watercraft, lowers the assessment ratio from 10.5% to 6% over three years, and ends separate titling for outboard motors.

Before and after: South Carolina tax changes

Who is affected

These changes matter most for:

• South Carolina residents filing 2026 state returns in 2027
• Part-year residents who moved into or out of South Carolina during 2026
• Green card holders and many H-1B, L-1, TN, and O-1 workers living in the state
• Boat owners who keep or register vessels in South Carolina
• Families whose federal AGI changed because of wage income, self-employment income, or investment income

For F-1 and J-1 visa holders, the impact depends on state residency and whether you have South Carolina taxable income. Federal nonresident status does not always mean no state filing duty.

Income tax reduction under H.4216

The House passed H.4216 on March 10, 2026, after concurring with Senate amendments. The law was promoted as immediate relief, and House leaders said about 43% of filers should benefit on returns filed in April 2027.

The immediate change is the one most taxpayers will notice first: the top marginal state income tax rate falls from 6.0% to 5.21% for tax year 2026.

The law also changes the starting point for South Carolina tax calculations. The state moves from federal taxable income to federal AGI.

That matters because AGI appears earlier on your federal return. It can be affected by wages, business income, interest, capital gains, IRA deductions, student loan interest, and other adjustments.

Practical effect

Here is a simple example.

• A South Carolina resident on H-1B status earns wages in 2026 and files Form 1040
• Under the old rules, state tax calculations started from federal taxable income
• Under the new rules, the state starts from federal AGI
• The top marginal rate for 2026 is now 5.21%, not 6.0%

That does not mean every filer gets the same savings. The result depends on income level, filing status, and how South Carolina applies additions, subtractions, exemptions, and credits.

The state projects a revenue reduction of $309 million from this change.

Boat property tax reduction under H.3858

The House unanimously passed H.3858 on March 24, 2026, after earlier Senate approval by a 39-1 vote.

This law addresses South Carolina’s unusually high boat taxes in several ways:

• A 50% exemption applies to the fair market value of watercraft
• The assessment ratio falls from 10.5% to 6%
• That assessment ratio change happens over three years
• Separate titling for outboard motors is eliminated
• Boat owners get a “one boat, one bill” approach

The state’s goal is clear. Lawmakers want more owners to register vessels in South Carolina rather than elsewhere.

Practical effect

Suppose a permanent resident owns a boat kept in Charleston and was paying property tax under the prior valuation method. Under the new law, the taxable value should fall because of the 50% exemption, and the assessment ratio will move lower during the phase-in period.

The exact bill will still depend on:

• Fair market value
• County millage rates
• The phase-in year
• Whether the vessel qualifies under the new rules

Transition rules and timing

The two laws do not work in the same way.

Income tax changes have an immediate effect for tax year 2026. Taxpayers should see that when filing 2026 returns in 2027.

Boat tax changes include a phase-in. The assessment ratio drops from 10.5% to 6% over three years, so some relief builds over time rather than all at once.

The income tax law also contains a future path toward a 1.99% flat tax over five years. It may move further, and there is even potential elimination language tied to revenue triggers. That future relief is not automatic in every year. Taxpayers should watch later guidance.

Why the federal return matters more now

Because South Carolina is shifting to federal AGI as the tax base, your federal return becomes even more important for state tax purposes.

That is especially relevant for immigrants and visa holders who may face:

• First-year residency choices
• Dual-status filing
• Treaty positions
• Foreign income reporting
• Different treatment under Form 1040 and Form 1040-NR

For federal filing help, review IRS forms and publications, especially Publication 519 and Publication 17. If you claim treaty benefits, Publication 901 is also worth reviewing.

Political and fiscal context

Both measures were signed after legislative ratification and fit into a broader tax policy effort in Columbia.

Supporters linked the 2026 changes to prior cuts, including the 2021 income tax reduction signed by McMaster, which state officials described as the largest in South Carolina history. State officials have said those earlier changes saved taxpayers $1.275 billion.

House Ways and Means Chairman Bruce Bannister and House Majority Whip Brandon Newton were closely tied to the effort. McMaster had also called for tax relief earlier in his 2026 State of the State address.

What South Carolina taxpayers should do now

If you live in South Carolina for tax year 2026, take these steps before filing in 2027:

Action items:

• Review your 2026 pay withholding and estimated payments
• Check whether your South Carolina filing will be based on a federal AGI amount different from prior years
• If you own a boat, confirm how your county will apply the new valuation and phase-in rules
• Keep records of purchase price, fair market value, and registration documents
• If you are a visa holder, confirm whether you are a South Carolina resident, part-year resident, or nonresident for state filing purposes
• If your 2026 federal return is dual-status or treaty-based, speak with a CPA before filing the state return