For tax year 2020, may South Carolina taxpayers use the higher 2019 earned income amount to compute the South Carolina earned income credit (per SC IL #21-4)?

Plain-English summary

For tax year 2020, South Carolina taxpayers had to compute the South Carolina earned income credit using their 2020 earned income — they could not use the federal "lookback" election that let them substitute the higher 2019 earned income.

Here is why the state and federal answers differed for 2020:

• The federal earned income credit (IRC § 32) is a refundable credit that depends on having qualifying earned income and meeting adjusted-gross-income limits. As COVID-19 relief, the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (enacted December 27, 2020, as part of the Consolidated Appropriations Act of 2021) let a person whose earned income was higher in 2019 than in 2020 elect to use the 2019 amount to figure the federal credit for 2020.
• The South Carolina credit (Code § 12-6-3632) is a nonrefundable credit equal to a percentage of the federal earned income credit allowed under IRC § 32. Enacted in 2017, it phases in over six years in equal 20.83% installments from 2018 to 2023, so for tax year 2020 it equals 62.5% of the federal credit.
• During the 2020 legislative session South Carolina conformed to the Internal Revenue Code as of December 31, 2019 (2020 Act No. 147). That conformity date is before the December 2020 federal relief act, so the 2019-lookback election is not part of South Carolina law for 2020. As a result, the South Carolina credit for 2020 must be calculated on the 2020 earned income amount.

The letter adds a forward-looking note: if the General Assembly conformed to the federal provision in the 2021 session, South Carolina would then allow taxpayers to elect the higher 2019 earned income when computing the 2020 South Carolina credit.

What this means for you

Full-year South Carolina residents claiming the credit for 2020

Compute your South Carolina earned income credit as 62.5% of your allowed federal earned income credit, but base it on your 2020 earned income — not the 2019 figure you may have elected on your federal return.

Watch for later conformity legislation

Because the letter was issued mid-session, a subsequent 2021 conformity act could change this answer for 2020. Check whether South Carolina updated its IRC conformity date before finalizing.

Note on refundability

The federal credit is refundable; the South Carolina credit is nonrefundable, so it can reduce your South Carolina tax to zero but does not generate a refund on its own.

Common questions

Q: What percentage of the federal EITC was the South Carolina credit for 2020?
A: 62.5% — the fourth 20.83% installment of a six-year phase-in running from 2018 to 2023.

Q: Why couldn't I use my 2019 earned income for the South Carolina credit like I did federally?
A: South Carolina had conformed to the Internal Revenue Code only as of December 31, 2019, which is before the December 2020 federal act that created the 2019-lookback election.

Subject

Earned Income Credit Computation for 2020

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/IL21-4.pdf

Original ruling text

STATE OF SOUTH CAROLINA

DEPARTMENT OF REVENUE
300A Outlet Pointe Blvd., Columbia, South Carolina 29210
P.O. Box 125, Columbia, South Carolina 29214-0575

SC INFORMATION LETTER #21-4

SUBJECT:

Earned Income Credit Computation for 2020
(Income Tax)

DATE:

February 12, 2021

AUTHORITY:

S.C. Code Ann. Section 12-4-320 (2014)
S.C. Code Ann. Section 1-23-10(4) (2005)
SC Revenue Procedure #09-3

SCOPE:

An Information Letter is a written statement issued to the public to announce
general information useful in complying with the laws administered by the
Department. An Information Letter has no precedential value.

Federal Earned Income Tax Credit – Tax Year 2020 Special Provision
Internal Revenue Code Section 32 provides for a refundable earned income credit. To claim the
earned income credit, a taxpayer must have qualifying “earned income” 1 and meet certain
adjusted gross income limits for the current tax year.
As part of the Consolidated Appropriations Act of 2021, Congress enacted the Taxpayer
Certainty and Disaster Tax Relief Act of 2020 2 on December 27, 2020, in response to the
COVID-19 pandemic. As part of the temporary relief provided, an individual eligible for the
earned income credit whose earned income was higher in 2019 than in 2020 is allowed to elect to
use the 2019 earned income amount to figure the earned income tax credit for 2020. 3

1

Earned income does not include unemployment compensation.
Public Law 116-260, Div. EE, December 27, 2020.
3
See Div. EE, Section 211.
2

1

South Carolina Earned Income Tax Credit - Tax Year 2020 Computation
Code Section 12-6-3632 provides a full-year resident individual a nonrefundable South Carolina
earned income tax credit and reads:
There is allowed as a nonrefundable credit against the tax imposed pursuant to
Section 12-6-510 on a full-year resident individual taxpayer an amount equal to
one hundred twenty-five percent of the federal earned income tax credit (EITC)
allowed the taxpayer pursuant to Internal Revenue Code Section 32.
Enacted in 2017, the credit is phased in over six years in equal installments of 20.83% from 2018
to 2023. For tax year 2020, the South Carolina earned income credit amount is 62.5% of the
federal earned income tax credit allowed pursuant to Internal Revenue Code Section 32.
During the 2020 Legislative Session, South Carolina conformed to the Internal Revenue
Code as of December 31, 2019. 4 The Internal Revenue Code as of December 31, 2019
does not include the federal Taxpayer Certainty and Disaster Tax Relief Act of 2020.
Accordingly, for South Carolina income tax purposes, the South Carolina earned income
credit must be calculated using the 2020 earned income amount.
Note: If the South Carolina General Assembly conforms to this federal provision in the
current 2021 Legislative Session, South Carolina will allow individuals to elect to use the
higher 2019 earned income amount in computing the 2020 South Carolina earned income
credit.

4

Act No. 147, Section 3, signed by the Governor on September 28, 2020.
2