CCH Tax Day Report
Recently, enacted South Carolina legislation creates new income tax credits for preventive vehicle maintenance and for earned income. The legislation also increases the existing individual income tax credits for in-state college tuition and for filers with two wage earners. Additional changes to the motor vehicle user fee (TAXDAY, 2017/05/12, S.27) and to the sales tax (TAXDAY, 2017/05/12, S.26) that are contained in the legislation are discussed in separate stories.
Preventative vehicle maintenance credit: Beginning with the 2018 tax year, a new refundable income tax credit is allowed for preventative maintenance on a private passenger motor vehicle or motorcycle registered in South Carolina. The amount of the credit is the lesser of: (1) the resident taxpayer’s actual motor fuel user fee increase incurred for that motor vehicle as a result of the increase of two cents a year for six years in the motor vehicle user fee (also enacted in H.B. 3516) or (2) the amount the resident taxpayer expends on preventative maintenance. Documentation may be required. A resident taxpayer may claim the credit for up to two private passenger motor vehicles, each calculated separately. The total amount of the credit for all taxpayers may not exceed $40,000,000 for the 2018 tax year, $65,000,000 for the 2019 tax year, $85,000,000 for the 2020 tax year, $110,000,000 for the 2021 tax year, and $114,000,000 for all tax years after 2021. Unless reauthorized by the South Carolina General Assembly, the credit may not be claimed for tax years beginning after 2022.
“Preventive maintenance” includes costs incurred within South Carolina for new tires, oil changes, regular vehicle maintenance, and the like. “Motor fuel expenditures” are defined as purchases of motor fuel within South Carolina to which the motor fuel user fee increase of two cents a year for six years applies (also enacted in H.B. 3516).
Earned income tax credit: First effective for the 2018 tax year, a new nonrefundable individual income credit is allowed against the South Carolina income tax to full-year resident individual taxpayers. The credit is to be phased in six equal installments of 0.2083% until in tax year 2023. In tax year 2023, the credit will equal 125% of the federal earned income tax credit (EITC) allowed the taxpayer under IRC §32.
Two wage earner credit: Effective for the 2018 tax years, the credit allowed married individuals against the South Carolina income tax if both spouses have South Carolina earned income and filed a joint return has been increased. In tax year 2023, the credit will be limited to 0.7% multiplied by the lesser of $50,000 (previously $30,000) or the South Carolina qualified earned income of the spouse with the lower qualified earned income for the taxable year. The increase in the multiplier to $50,000 is being phased-in in six equal installments of $3,333 each year, until fully-phased in tax year 2023. The first increase of $3,333 will occur in tax year 2018. This amendment is effective May 10, 2017 and applies to tax years beginning after 2017.
In-State College Tuition Credit: The refundable credit allowed against South Carolina individual income tax for a percentage of college tuition paid to an in-state institution has been increased. Effective for the 2018 tax year, the credit will be in the amount of 50% (previously, 25%) of tuition paid, not to exceed $1,500 in the case of either a four-year or two-year institution (previously, $850 for a four-year institution and $350 for a two-year institution). The credit may be claimed by either the student or by an individual eligible to claim the student on his or her federal income tax return, whoever actually paid the tuition. The maximum amount of the credit allow to all taxpayers may not exceed $40,000,000 in tax year 2018. This amount is increased for each year after 2018 to include a cumulative amount equal to the percentage increase in the Higher Education Price Index, not to exceed 3%. If the total amount of the credit claimed in a tax year does exceed the maximum amount, each credit will be reduced proportionately. This amendment is effective May 10, 2017 and applies to tax years beginning after 2017.
H.B. 3516, Laws 2017, vetoed by Governor McMaster on May 9, 2017, veto overridden by South Carolina House and Senate on May 10, 2017, effective July 1, 2017 except as noted above