A BILL TO AMEND THE SOUTH CAROLINA CODE OF LAWS BY AMENDING SECTION 12-6-1120, RELATING TO MODIFICATIONS TO GROSS INCOME FOR INDIVIDUAL INCOME TAX PURPOSES, SO AS TO EXCLUDE OVERTIME PAY AND CERTAIN BONUS PAY FROM GROSS INCOME.
Summary
H. 3368 amends South Carolina’s individual income tax laws to exclude overtime pay and certain bonus pay from gross income, reducing the taxable income base for affected workers. The bill also updates the state’s conformity provisions to the Internal Revenue Code through December 31, 2025, and makes corresponding changes for how expired federal provisions are treated for South Carolina income tax purposes.
In addition to the overtime/bonus exclusion, the bill creates a new mechanism for taxpayers to receive relief when a later-enacted law changes the tax treatment of a prior tax year after a return has already been filed. In that situation, a taxpayer may choose to claim a refundable credit on the next year’s return instead of filing an amended return, equal to the decrease in tax liability that would have resulted if the law had been in effect when the original return was filed.
Impact
The bill would directly reduce state income tax collections by removing qualifying overtime and bonus compensation from gross income for individual income tax purposes. It would also add a new refundable credit process in Title 12 for retroactive tax changes, affecting how taxpayers and the Department of Revenue handle post-filing tax law changes. The measure amends Sections 12-6-40 and 12-6-1120 and adds new Section 12-5-3830, with the changes taking effect upon gubernatorial approval.
Sentiment
The bill appears to have strong support in the House, where it passed 116-0, indicating broad bipartisan or near-unanimous approval at that stage. In the Senate, however, it failed on second reading by a 16-27 vote, showing substantially less support and suggesting concerns emerged in the upper chamber about the policy or its fiscal effects. No committee transcript is available, so the recorded votes are the main indicator of sentiment.
Contention
The main point of contention is likely the revenue impact of exempting overtime and certain bonuses from income tax, since that reduces state tax receipts and narrows the tax base. Another likely issue is whether the exemption is the best way to provide worker relief, especially compared with broader tax cuts or targeted credits. The Senate vote suggests opposition or hesitation from a majority of senators, while the House vote shows the proposal was more popular among House members.