SC Withholding Tax Tables Update: What You Need to Know

 SC withholding Tax Tables are finally updated after 25 years

Employers, payroll providers and tax professionals need to prepare for a big change in South Carolina taxes coming January 1, 2017. For the first time in 25 years, the South Carolina Department of Revenue is updating the State’s Withholding Tax tables.

On January 1, 2017 these new Withholding tables must be implemented in payroll systems across South Carolina. Updated tables are available on the SCDOR website at dor.sc.gov/withholding. South Carolina Withholding tables will now be updated annually.

Outdated Withholding tables have led to significant over-withholding: $1.5 billion, or 21% of the State’s General Fund, in Fiscal Year 2015 alone. “Taxpayers are essentially loaning their money to the government throughout the year interest-free,” said SCDOR Director Rick Reames. The State then must turn around and return this money to taxpayers in the form of income tax refunds. “By simply updating the State’s Withholding tables annually, we will put $1 billion back in people’s paychecks over the next 10 years,” said Reames.

Over-withholding has also led to a steady growth in state income tax refunds, which now average approximately $840 per person. While updating the tables will ultimately lead to smaller income tax refunds, taxpayers will keep more of their money in their paycheck throughout the year. Smaller refunds also help reduce the potential for and impact of tax refund fraud, a nationwide problem that the SCDOR is working hard to mitigate.

Modernizing Withholding Fast Facts

  • South Carolina’s Withholding Tax tables have not been updated in 25 years.
  • Federal Withholding Tax tables are updated on an annual basis.
  • In Fiscal Year 2015, the State over-withheld $1.5 billion from taxpayer paychecks, amounting to 21% of the State’s General Fund.
  • The average income tax refund for South Carolina taxpayers is currently $840.
  • Updated Withholding Tables will be published every August and will go into effect the following January. Updated tables can be found on the SCDOR website atdor.sc.gov/withholding.

 
Modernizing Withholding FAQs
 
Why is over-withholding a problem?
The negative impacts of over-withholding are significant and include:

  • Unsound Budgeting: General fund budgeting must account for this huge sum of money that is collected throughout the year only to be sent back to taxpayers in their refund checks.
  • Unnecessary Administrative Costs: The actual collection and later redistribution of these refunds creates wasted time and resources – which is paid for with tax dollars.
  • Undeniable Risk: These huge sums of money serve as targets for cyber criminals around the world, who find it easier every year to steal personal information online, file fake returns, and collect on these large refunds.

How will this change affect individual taxpayers?
Smaller individual income tax refunds will become the norm as many constituents will keep more money in their paychecks throughout the year. Reducing over-withholding is essential in the fight against tax refund fraud. Smaller refunds may help decrease tax refund fraud as criminals target large refunds for theft.

How will this change affect businesses and tax preparers?
Businesses who file their own Withholding Tax returns as well as tax preparers and payroll providers will need to update their Withholding tables. Tables can be found on our website atdor.sc.gov/withholding. In another effort to combat income tax refund fraud, the Legislature approved SCDOR’s request to change the 4thQuarter Withholding deadline. Fourth Quarter Withholding returns and employer W-2s are now due to the SCDOR by January 31, 2017.

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