Updated October 5, 2026. Quick answer: Yes. South Carolina taxes interest and dividends as ordinary income. The Code modifies the federal exclusion to “exempt only interest on obligations of this State or any of its” political subdivisions and to exempt U.S. obligations, so other states’ municipal bond interest is added back. The 2025 top rate is 6.0%.
How South Carolina treats dividends and interest
| Item | What the documents say |
|---|---|
| Treatment | Taxed on the graduated schedule |
| 2025 schedule | 0% under $3,560; 3% times the amount minus $107 from $3,560 up to $17,830; “6.0% times the amount minus $642” at $17,830 or more |
| Top rate | “the top marginal Individual Income Tax rate changed to 6%” for tax year 2025 |
| Other states’ bonds | Line d adds back “obligations of states and political subdivisions other than South Carolina” |
| U.S. obligations | “US obligations include savings bonds, treasury notes, and treasury bills.” Subtract them on line m |
| Fannie Mae, Freddie Mac and Ginnie Mae | The packet lists interest from these obligations as taxable for state purposes |
A $20,000 example
Taxable dividends and interest of $20,000 that sit in the top bracket, where total taxable income is $17,830 or more, add $20,000 x 6.0% = $1,200 of South Carolina tax. The $642 in the printed schedule is subtracted once, from 6.0% of your whole taxable income, not from each slice of it. Lower income uses the 3% or 0% steps.
What changes in 2026
The June 2025 legislative update shows the top rate at 6.0% for 2025 and 2026. It says “The tax rate reduction will continue by one-tenth of one percent” a year only if the statutory revenue condition is met.
Federal rules
The state’s treatment sits on top of the federal one. Qualified dividends and ordinary dividends are sorted out on the Form 1099-DIV, as the site explains in Box 1a and 1b: ordinary versus qualified dividends, and interest is reported as covered in 1099-INT Box 1. The IRS explains the federal side in Topic no. 403, Interest Received and Topic no. 404, Dividends.
Related: whether South Carolina taxes capital gains, whether South Carolina taxes pensions, how South Carolina taxes retirement income, dividends and interest tax by state, and how tax-exempt interest is reported.
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Answer againSources
- 2025 SC1040 Individual Income Tax Form and Instructions (IIT Packet): https://dor.sc.gov/sites/dor/files/forms/IITPacket_2025.pdf
- South Carolina Code of Laws Title 12 Chapter 6 (Secs. 12-6-510, 12-6-1120): https://www.scstatehouse.gov/code/t12c006.php
- Tax Legislative Update for 2025 (June 2025): https://dor.sc.gov/sites/dor/files/Documents/Policy Manuals/Legislative Update for 2025.pdf
Sources: the primary documents linked above, read on October 5, 2026. General information, not tax advice. Your own facts decide the outcome, and a preparer, the plan administrator or the agency itself is the right place to confirm anything consequential.