South Carolina vs North Carolina taxes for retirees come down to your pension type: an older federal or North Carolina government pension (one you had five years toward by 1989) favors North Carolina, military retired pay favors South Carolina, and a private pension or IRA is usually a little cheaper in South Carolina in 2026.

If you're still weighing more states than these two, our retirement relocation tax planning team can map them.

Is South Carolina or North Carolina cheaper for retirees?

It depends on the pension. For a married couple, both 65, with $70,000 of pension, $50,000 of IRA withdrawals and $50,000 of Social Security, South Carolina is about $438 a year cheaper with a private pension, North Carolina is about $2,355 cheaper with a Bailey-eligible federal pension, and South Carolina is about $430 cheaper with military retired pay.

• Private pension or IRA — South Carolina's $10,000 retirement deduction plus the rest of the $15,000 age-65 deduction per spouse.
• Bailey-eligible federal or NC government pension — fully excluded in North Carolina on Schedule S Line 20.
• Military retired pay — fully deductible in South Carolina (S.C. Code §12-6-1171), deductible in North Carolina after 20 years.

Do the Carolinas tax Social Security at all?

No — neither one. Social Security is fully exempt in both North Carolina and South Carolina, so that part of the comparison is a tie.

North Carolina's own return instructions put it plainly: "Social Security and railroad retirement benefits are not subject to state income tax." South Carolina treats it by statute — S.C. Code §12-6-50 simply never lets the federal Social Security inclusion into the state base. One wrinkle that matters later: whatever portion of your Social Security lands in your federal adjusted gross income (adjusted gross income, the AGI line on your federal Form 1040) still counts toward South Carolina's income test when its new deduction phases out — even though South Carolina subtracts it back out. More on that below.

How much state tax would a retired couple pay in South Carolina vs North Carolina in 2026?

For a married couple both 65 or older with a $70,000 private pension (or an out-of-state public pension — not Bailey-eligible), $50,000 of IRA withdrawals and $50,000 of Social Security, South Carolina comes out about $438 cheaper for 2026: roughly $3,332 versus North Carolina's roughly $3,771. I ran the numbers both ways.

North Carolina, 2026

1. Start at $162,500 of federal AGI — the $70,000 pension plus $50,000 of IRA withdrawals plus 85% of the $50,000 of Social Security ($42,500, per IRC §86).
2. Subtract the $42,500 of Social Security and the $25,500 married-joint standard deduction → $94,500 of North Carolina taxable income.
3. $94,500 × 3.99% → about $3,771 of state tax.

South Carolina, 2026

1. Same $162,500 of federal AGI; subtract the $42,500 of Social Security → $120,000.
2. Subtract each spouse's retirement deduction ($10,000 × 2 = $20,000).
3. Subtract what remains of the age-65 deductions ($10,000).
4. Subtract the SCIAD — a $30,000 flat deduction that replaces the federal standard deduction and shrinks as income rises: $162,500 is $82,500 into the $110,000 phase-out range that starts at $80,000, so the $30,000 SCIAD drops by 75% ($22,500), leaving $7,500.
5. $120,000 − $20,000 − $10,000 − $7,500 = $82,500 of South Carolina taxable income.
6. $82,500 × 5.21% − $966 → about $3,332.

Computed from Act 110 as enacted; SCDOR's 2026 tables aren't out yet and the bracket is inflation-indexed, so the South Carolina figure can drift slightly. For a private pension the gap is real but small — $3,770.55 versus $3,332.25, or $438.30 for the year.

Now flip the pension type, and the winner flips with it. If that $70,000 were a federal civil-service pension with five years vested by August 12, 1989, North Carolina's taxable income drops to $24,500 — about $978 total — and North Carolina wins by roughly $2,355. If the $70,000 were military retired pay, South Carolina deducts every dollar, ends around $547, and edges North Carolina's $978 by about $430.

How does South Carolina tax a pension or IRA in 2026?

If you're under 65, you can deduct up to $3,000 of qualified retirement income; from 65 on, it's up to $10,000 a year from your own plan. Anything hit with the federal early-withdrawal penalty doesn't qualify.

The deduction covers the usual retirement buckets — plans under IRC sections 401, 403, 408 and 457, public employee plans (federal, state and local), IRAs, Keoghs, and military retirement — per South Carolina's SC1040 instructions. On top of that, starting the year you turn 65 there's a separate $15,000 deduction against any South Carolina income, reduced by whatever retirement deduction you claimed. A couple both 65 or older can put together up to $30,000 a year of deductions. If one of you is still under 65, that spouse can take up to the $3,000 retirement deduction and no age-65 deduction yet; S.C. Code §12-6-1170 caps a joint return at $15,000 when only one spouse is 65 and $30,000 when both are.

For 2026, Act 110 (H.4216) rewired the whole return:

• The rates for 2026: 1.99% on the first $30,000 of taxable income and 5.21% on the rest (the Act writes it as 5.21% minus $966 for income of $30,000 and above) — down from a 6% top rate on a 2025 return.
• The return now starts from federal AGI instead of federal taxable income.
• Married couples filing jointly get a $30,000 South Carolina Income Adjusted Deduction — the SCIAD, a flat $30,000 deduction that replaces the federal standard deduction and phases out evenly between $80,000 and $190,000 of federal AGI, per Act 110 itself.

How does North Carolina tax a pension or IRA in 2026?

North Carolina has a flat rate — 3.99% for 2026, down from 4.25% in 2025 — and a married couple's standard deduction of $25,500, with no extra amount for being 65.

The rate comes straight from the statute: N.C.G.S. §105-153.7 lists 4.25% for 2025 and 3.99% after 2025. (Another cut can kick in from 2027 only if state revenue clears a trigger — no one should bank on it.) The deduction lives in §105-153.5: a flat $25,500 for married filing jointly, and the Form D-401 instructions confirm there's no age-65 add-on. So a private pension or IRA withdrawal just rides through at 3.99% minus the subtraction for Social Security.

What is the Bailey settlement, and who still qualifies?

Five years of creditable service — years that count toward your pension — by August 12, 1989, in a federal or North Carolina government plan: that is the Bailey test, and if you meet it North Carolina cannot tax that pension.

For decades, the statutes building North Carolina's public retirement systems said the benefits were "exempt from any state or municipal tax." Then in 1989 the U.S. Supreme Court said states couldn't treat federal retirees differently from their own — and North Carolina answered by expanding the exemption but capping it at $4,000 a year, for everyone. A group of state and local retirees sued, and on May 8, 1998 the North Carolina Supreme Court ruled in Bailey v. State that the exemption was a term of the retirees' contract, and that for retirees whose pensions had vested — earned for good, so they can't be taken back — the State could not tax those benefits. The court put it this way: "Legislative convenience is not synonymous with reasonableness." If you have a federal or North Carolina government pension, pull the date your creditable service began and check it against August 12, 1989 before you pick a state.

Today the statute lists the Bailey-line settlements by name and lets retirees from federal plans (including military) and North Carolina state or local plans subtract those benefits, per §105-153.5(b)(5). NCDOR's Bailey page spells out who qualifies and adds a catch that trips movers up: a pension from another state's teachers' or employees' system does not qualify (no matter how long you served), and North Carolina's return instructions add that the exclusion doesn't reach local-government §457 plans or §403(b) annuity plans. You claim it on Line 20 of Form D-400 Schedule S — and NCDOR reminds filers they still must file a North Carolina return even when everything is exempt, if your income meets North Carolina's filing threshold.

One federal retiree on the TurboTax community put his own check this way:

"I believe my CSRS pension meets the criteria for exclusion from NC taxes because … my service computation date was in January 1982, which was 7 years (only 5 years is required) before the 1989 vesting date." — Bouvet, TurboTax Community, March 6, 2023

His follow-up — whether Thrift Savings Plan withdrawals qualify — was answered by another poster, not by NCDOR. The safe move: claim on Line 20 only the pension amounts NCDOR's Bailey page names, and attach the Form 1099-R, which NCDOR says must be attached to support the deduction.

Which state wins for a military pension?

South Carolina, by about $430 a year in my example — though North Carolina also exempts military retired pay if you served 20 or more years. South Carolina deducts all military retired pay, no service-length condition; North Carolina's Line 21 deduction needs 20 years of uniformed service (or a medical retirement).

South Carolina's own instructions put a real figure on it: a 65-plus taxpayer with $36,000 of military retirement deducts all $36,000 (which replaces his separate $10,000 retirement deduction and $15,000 age-65 deduction), per the SC1040 instructions and S.C. Code §12-6-1171. North Carolina answers on the other side of Line 21 of the D-401 instructions: a retired member who served at least 20 years in the Uniformed Service deducts those payments. If you served 20 years, neither state taxes the military pension itself. South Carolina still comes out lower for my example couple ($547 vs $978) because what's left — $27,500 of taxable income — falls entirely under South Carolina's 1.99% rate, while North Carolina taxes its $24,500 at 3.99%.

Running your own two sets of pension figures against both state returns is the side-by-side state tax planning for retirees that our tax advisory and planning team does — by phone or video, before someone signs a lease or closes on a house.

Do either of the Carolinas give seniors a property-tax break?

Both do, but the tests differ: South Carolina's senior homestead exemption has no income test, while North Carolina's elderly exclusion is income-limited to $38,800 for 2026.

South Carolina's property-tax page describes a complete exemption on the first $50,000 of fair market value of your legal residence once you're over 65 (also totally and permanently disabled or legally blind) — with the catch that you must have lived in South Carolina as your permanent home and legal residence for a full calendar year before the tax year, and you apply through your county. For tax year 2026 the state temporarily authorized an additional exemption for some homeowners, administered by the county auditor. North Carolina's senior program on Form AV-9 for 2026 excludes the greater of $25,000 or 50% of your home's appraised value — but only if your prior-year income was no more than $38,800 (the 2026 limit). The example couple above, at $162,500 of AGI, would not qualify in North Carolina. I don't compare property-tax rates here — I'd check the county you're buying in.

Can my old state still tax my pension after I move to the Carolinas?

Once you've truly moved, your old state can't tax your pension or IRA withdrawals under 4 U.S.C. §114 — but your old state decides whether you truly moved. The statute bars any state from taxing retirement income of someone who "is not a resident or domiciliary of such State (as determined under the laws of such State)." The parenthetical is the catch.

On a 2025 California return — the latest year California has published — this same couple paid about $2,973, so for a private-pension couple a move from California to either Carolina doesn't lower the state income tax bill; Florida, Texas or Nevada would take it to zero. That is exactly the comparison in our best states to retire for taxes post, written for retirees weighing how each candidate state treats Social Security, pensions and IRA withdrawals.

California's own residency guide says residency follows "the place where you have the closest connections," and the FTB Publication 1031 factor list reads like a checklist of ties to move:

• Amount of time you spend in California versus outside it
• Location of your spouse or partner and children
• Location of your principal residence
• State that issued your driver's license
• State where your vehicles are registered
• State where you are registered to vote
• Location of the banks where you keep accounts
• Location of your doctors and other healthcare providers, accountants, and attorneys
• Location of your social ties — place of worship, professional associations, clubs
• Location of your real property and investments

And if you spend more than nine months of the year in California, the statute presumes you're a resident (§17016) — a presumption you can rebut, not a wall. In Appeal of Bracamonte (2021-OTA-156P), a couple with Nevada licenses and a Henderson apartment still lost because the calendar showed them back in California — the opinion said their apartment stay "was marked with impermanence." Our Florida residency requirements guide, written for retirees changing their legal home to Florida, has the same leave-your-old-state checklist — it carries over to a move to either Carolina. And if your move involves timing a Roth conversion, our piece on converting around a move between states, written for savers doing exactly that, shows why the state of residence on the conversion date decides which state taxes the conversion.

What do retirees ask most about Carolina taxes?

Retiring to the Carolinas and want the pension-type math run on your own numbers first? N&T Tax & Advisory Group compares state residency and retirement-income math for couples choosing where to retire — by phone or video, nationwide. Book a meeting with our team here.