Annually Provided Tax Relief during New Year's for Residents of North and South Carolina
In various locations across the nation and locally, tax reductions will materialize on January 1, 2025. North Carolina, for instance, will lower its state's uniform personal income tax rate from 4.5% to 4.25%. Similarly, South Carolina will witness a decrease in its top marginal income tax rate from 6.4% to 6.2% on New Year's Day.
Adhering to a tax legislation approved in 2022, South Carolina anticipates two more reductions in the top marginal income tax rate with the end goal of bringing it down to a 6% rate. South Carolina legislative leaders, however, have communicated a desire for additional tax relief, marking it as a top legislative priority in 2025.
Referring to his priorities for 2025, South Carolina House Speaker Murrell Smith recently voiced, "My number one objective is tax relief." In defense of decreasing income tax rates, Speaker Smith highlights how much more burdensome South Carolina's top marginal rate is compared to their rival states.
"I've been keenly aware of this from attending conferences and being in conversations with speakers from other states," Smith told the Charleston Post & Courier. "They're all pursuing monumental tax reform and lowering their marginal rates."
For quite a while, North Carolina possessed the region's highest top marginal income tax rate, set at 7.75%. Through a sequence of tax reforms initiated by North Carolina legislators over the past 12 years, they've managed to decrease the rate to a flat 4.25%, and plans to reduce it even further to 2.49% are underway if revenue benchmarks are met. Such a rate would render North Carolina home to the nation's lowest uniform income tax rate, a position currently held by Arizona with a flat rate of 2.5%.
Since 2021, numerous states have passed tax relief bills, with South Carolina being one of them. Nevertheless, once the South Carolina rate drops to 6%, it will remain higher than its neighboring states' rates and those of remaining states competing for jobs, investments, and people.
Reforming the state tax code to lower income tax rates is not just a concern among South Carolina House of Representatives leaders but also among prominent voices in the South Carolina Senate, like Senator Sean Bennett (R), who have advocated for South Carolina's tax code being uncompetitive and requiring reform.
Furthermore, South Carolina Senator Josh Kimbrell (R) has presented legislation aiming to simplify South Carolina's tax system by transitioning to a single rate of 3.5%. If South Carolina were to adopt a 3.5% single rate, it would catapult the state from having the highest income tax rate in the region to the lowest.
Although South Carolina currently has a higher top marginal income tax rate than its Georgia and North Carolina neighbors, its overall state tax burden is generally lower. Speaker Smith and his peers, however, acknowledge that although they impose a lower average overall state tax burden than North Carolina or Georgia, the high sticker price of South Carolina's relatively high top marginal income tax rate is hampering the state's potential growth and placing it at a disadvantage in the global competition for investments, jobs, and people.
Alongside North and South Carolina, seven additional states will experience income tax reductions at the beginning of 2025. Members of the U.S. Congress are also planning to implement an extension of the personal income tax rate reductions included in 2017's Tax Cuts and Jobs Act, along with modifications to the federal tax code, such as the restoration of full business expensing for capital expenditures and research and development costs. Notably, South Carolinians form part of the minority group of Americans who will experience decreases in both their state and federal taxes in 2025.
- The tax legislation approved in 2022 in South Carolina outlines plans for further reductions in the state's top marginal income tax rate, aiming to bring it down to 6%.
- North Carolina, like South Carolina, has also undergone tax reform, reducing its top marginal income tax rate from 7.75% to 4.25% over the past 12 years, with plans to lower it even further.
- In North Carolina, the fiscal policy of reducing state income taxes is a top priority, as evidenced by the House Speaker's statements, with the goal of making North Carolina home to the nation's lowest uniform income tax rate.
- Both North and South Carolina will lower their state income taxes on January 1, 2025, joining seven other states in reducing their income tax rates, and South Carolinians will be among the minority group of Americans experiencing decreases in both their state and federal taxes.
