A tax credit is an amount of money that can be used to offset your tax liability. South Carolina's tax credits may be earned by individuals, C corporations, S corporations, partnerships, sole proprietors, and limited liability companies. Credits are usually used to offset Corporate Income Tax or Individual Income Tax. Some credits can also be applied against Corporate License Fees, Bank Tax, Savings and Loan Tax, or Insurance Premium Tax. See the
specific credit form and instructions to determine who can earn the credit and which taxes it can offset.
Tax credits fall into one of two categories:
Nonrefundable credits cannot reduce your tax liability below zero. You may be able to carry unused nonrefundable credits forward to claim in future years. Use forms beginning with
TC- to claim nonrefundable credits
can reduce your tax liability to zero. Unused refundable credits are refunded to the taxpayer. Use forms beginning with
I- to claim refundable credits.
Most tax credits may not be sold, exchanged, or otherwise transferred. Refer to the specific credit to see if it is transferable.
Most tax credit forms are not year-specific, but check to make sure you are using the correct and most current version of the form for the credit you are claiming. Include the SC1040TC or the SC1120TC with your return to claim nonrefundable tax credits. Use the correct three digit code for the credit you are claiming on the
General Rules for Tax Credits
These rules apply to tax credits in general:
- Credits must be used in the year they are earned, as much as possible based on your tax liability.
- Credits can generally be applied in any order the taxpayer chooses. However, there are some credits (for example, the Research Expenses Credit) that limit the credit to the remaining tax liability after all other credits have been applied.
- Credits that may be claimed against both Corporate Income Tax and Corporate License Fees may be used against either or both in the same year.
- No credit may be used more than once.
- Credits that limit the amount that may be used in a year are computed one credit at a time before another credit is used to reduce the remaining tax liability.
- A taxpayer may file an amended tax return for a year that is out of statute to claim a credit that can be carried forward one or more open years. The credits carried forward must be reduced by the amount that could have been used in the years out of statute.
There are exceptions to these rules. For more information, see the
Tax Incentives for Economic Development publication and the specific form or application used to claim the credit.
How do I calculate credit limits?
Limitations on the total amount of tax liability that can be reduced by a credit are calculated one credit at a time. You can generally choose the order in which to apply credits, but some credits (for example, the Research Expenses Credit) limit the credit to the remaining tax liability after all other credits have been applied.
Taxpayer X has a $10,000 Income Tax liability and qualifies for a $6,000 Jobs Tax Credit and a $6,000 Child Care Credit. Each of these credits are limited to 50% of the tax liability.
|New Jobs Credit||($5,000) Limited to 50% of the tax liability|
|Remaining tax liability||$5,000|
|Child Care Credit||($2,500) Limited to 50% of the tax liability remaining after taking the first credit|
In this example, the taxpayer chose to use the New Jobs Credit first, but they could have used the credits in any order.
If I qualify for more than one tax credit, in what order do I use them?
Unless the SC Code Section allowing a credit says otherwise, you can use the credits in any order. Some credits, such as the Research Expenses Credit, specifically limit the credit to the remaining tax liability after all other credits have been applied.
Taxpayer Y has a $10,000 Income Tax liability and qualifies for a $6,000 New Jobs Credit and a $7,000 Conservation Credit. Taxpayer Y has two options for how to order the credits:
Option 1: Take the Conservation Credit first, then the New Jobs Credit|
|Conservation Credit||($7,000) Not limited to a percentage of tax liability|
|Remaining tax liability||$3,000|
|New Jobs Credit||($1,500) Limited to 50% of the remaining tax liability|
Taxpayer Y will have a New Jobs Credit carryforward of $4,500 ($6,000 credit - $1,500 used).|
Option 2: Take the New Jobs Credit first, then the Conservation Credit|
|New Jobs Credit||
($5,000) Limited to 50% of the remaining tax liability|
|Remaining tax liability||$5,000|
|Conservation Credits||($5,000) Not limited to a percentage of tax liability|
Taxpayer Y will have a New Jobs Credit carryforward of $1,000 ($6,000 credit - $5,000 used) and a Conservation Credit carry forward of $2,000 ($7,000 credit - $5,000 used).|
If I can't use my credit in a year, do I lose it?
Refer to the specific credit to see if it has a carryforward period. If the credit does not have a carryforward period, you cannot use it in a future year. If there is a carryforward period, you can carry unused credit amounts to future tax years.
How do I calculate a credit carryforward?
If you are allowed to carry unused credit forward to future years, calculate the carryforward amount as the difference between the credit earned and the amount used during the tax year. If you have credit carryforwards, attach a schedule to your return showing the year the credit was earned, the amount earned, and the amount used each tax year.
Taxpayer Z earns a $50,000 Corporate Headquarters Credit in Year 1. Their Corporate Tax liability for Year 1 is $5,000. They will have a credit carryforward of $45,000 ($50,000 - $5,000). Since the credit carryforward for the Corporate Headquarters Credit is 10 years, this amount can be carried forward for up to 10 years to be used against future tax liability.
|Corporate Headquarters Credit|
|Year 1 credit earned||$50,000|
|Year 1 credit used||($5,000)|
How do I claim a nonrefundable tax credit on my tax return?
Complete the appropriate schedule for the tax credit to determine the amount of credit you are eligible to take. Schedules for nonrefundable credits begin with
Individuals, fiduciaries, and partnerships enter the credit amount on the SC1040TC. Corporations enter the credit amount on the SC1120TC. Include the SC1040TC or the SC1120TC with your return. If you file by paper, or if you file electronically and your tax software supports attaching PDFs to the return, attach a copy of the appropriate TC schedule for the credit you are claiming. If you file electronically and are unable to attach the TC schedule to your return, keep a copy with your tax records. You should not mail a paper copy of the TC schedule to SCDOR if you file your return electronically.
How do I claim a refundable credit on my tax return?
Complete the appropriate schedule for the tax credit to determine the amount of credit you are eligible to take. Schedules for refundable credits begin with
Enter the credit amount on the appropriate line of the tax return. If you file by paper or you file electronically, include a copy of the completed tax credit schedule with your return.
How do I report a credit if I am a...
- For nonrefundable credits (schedules begin with TC-), complete the schedule for the credit you are claiming and attach it to your SC1065 along with the SC1040TC.
- Partnerships electing to pay active trade or business income tax can take nonrefundable tax credits earned by the partnership, and not yet passed through to partners, against their partnership level tax. Nonrefundable credits cannot be taken against the nonresident withholding tax due.
- Credits not used by the partnership are passed through to the partners.
- Provide each partner with an SC1065 K-1 showing the amount of credit allocated to them. Partners will use the credit amounts reported on the SC1065 K-1 to claim the credit on their returns.
- For the Refundable Motor Fuel Credit, complete the I-385 and attach it to your SC1065. Include the credit amount on the SC1065. This credit is taken at the partnership level. Other refundable credits are passed through to the partners on their SC1065 K-1s.
- The amount of credit you can pass through to a partner is usually equal to the partner’s percentage ownership in the partnership. However, there are exceptions to this rule, so refer to the specific SC Code Section for the credit you are claiming to determine the percentage you are able to allocate to each partner.
PARTNER OF A PARTNERSHIP OR THE SHAREHOLDER OF AN S CORPORATION
- If you owe corporate-level Income Tax, you must first use any credit at the entity level. You can then pass through any remaining credit to your shareholders. Once the credit has been passed through to shareholders, you cannot use it later against any entity-level tax.
- For nonrefundable credits (schedules begin with TC-), complete the schedule for the credit you are claiming and attach it to your SC1120S with the SC1120TC.
- Provide each shareholder with an SC1120S K-1 showing the amount of credit allocated to them. Shareholders will use the credit amounts reported on the SC1120 K-1 to claim the credit on their returns.
- For refundable credits (forms begin with I-), complete the form for the credit you are claiming and attach it to your SC1120S. Include the credit amount on the SC1120S.
- The amount of credit you can pass through to a shareholder is usually equal to the shareholder’s percentage of stock ownership. However, there are exceptions to this rule, so refer to the specific SC Code Section for the credit you are claiming to determine the percentage of the credit you are able to allocate to each shareholder.
LIMITED LIABILITY COMPANY (LLC)
- The amount of credit passed to you will be reported on the SC1065 K-1 (partnership) or SC1120S K-1 (S Corporation) that was issued to you by the partnership or S Corporation.
- Complete the appropriate schedule (begins with TC-) for the credit, using the amount of credit passed through to you from the partnership or S Corporation. It is important to complete the schedules to calculate any credit limitations.
- If you are an individual, fiduciary, or partnership, attach the schedule to your return along with the SC1040TC.
- If you are a corporation, attach the schedule to your return along with the SC1120TC.
CORPORATION INCLUDED IN A CONSOLIDATED RETURN
- See SC Code Section 12-6-3310(C) for special provisions on the qualification and use of credits by LLCs.
- In general…
- LLCs taxed as partnerships can earn and pass through most credits to their individual and corporate members.
- LLCs taxed as corporations can earn and use credits applicable to corporations.
- Disregarded single-member LLCs with an individual member can claim credits available to be used against Individual Income Tax.
- Disregarded single-member LLCs with a corporate member can claim credits available to be used against Corporate Taxes.
- LLCs owned by LLCs or other pass through entities will continue to pass through the credits until they are received by a member who can use them against Individual Income Tax or Corporate Taxes
- Any tax credits you earn are used and applied against the consolidated tax.
- On a consolidated return, the South Carolina taxable income or loss is computed separately for each corporation included in the return. The income or loss is then added together and reported on one return for the consolidated group.
- The use of tax credits, and any carryover of unused credits, is determined on a combined basis. Credits reduce the consolidated group’s tax liability, whether or not the corporation earning the credit had any tax liability. Limitations on credits are based on the income or tax liability of the consolidated group.
- Use the SC1120TC to report credits earned, used, lost due to statute, and carried forward by the group.
- The corporation entitled to the credit must complete the schedule for the credit it is claiming and attach it to their SC1120TC along with the SC1120.