Analysis of South Carolina H.3492: Making the state EITC partially refundable

South Carolina's House Bill 3492 would make the state's Earned Income Tax Credit (EITC) partially refundable. South Carolina currently matches 125% of the federal EITC (the highest rate in the nation), but the credit is entirely nonrefundable, meaning filers who owe little or no state income tax cannot claim its full value. H.3492 would allow taxpayers to receive 25% of the credit that exceeds their tax liability as a refund.

We at PolicyEngine have analyzed the effects of this proposed change on South Carolina and its residents.

Key results for 2026:

• Costs the state $402 million
• Benefits 25.1% of South Carolina residents
• Reduces poverty by 2.6%
• Lowers the Gini index of income inequality by 0.4%

Use PolicyEngine to view the full results or calculate the effect on your household.

Making 25% of the excess EITC refundable would benefit families with little or no state income tax liability. Currently, lower-income South Carolinians owe no state income tax because the standard deduction, dependent exemptions, and the 0% income tax bracket reduce their taxable income to zero before the EITC applies. Since the current SC EITC is nonrefundable, if a filer has no tax liability, they receive no value from the credit.

Under H.3492, taxpayers would receive 25% of their unused EITC as a direct refund. This refundable portion bypasses the tax liability constraint entirely: it is calculated based on the gap between the filer's eligible EITC and their tax liability, then paid out regardless of other tax provisions.

Consider a single parent with one child (age 5) earning $20,000. Under current law, South Carolina's standard deduction, dependent exemption, young child exemption, and 0% income bracket eliminate any state tax liability for this household until income exceeds $37,870 (see Table 1 for breakdown of each parameter).¹ Despite qualifying for a SC EITC of $5,533, they receive no benefit. Under H.3492, they would receive $1,383 (25% × $5,533) as a refund.

Table 1: SC tax provisions reducing liability for head of household filer with one young child

Provision	2026 value
Head of household standard deduction	$24,150
Dependent exemption	$5,040
Young child exemption	$5,040
0% bracket threshold	$3,640
Total	$37,870

As earnings rise above $37,870, the household begins to benefit from the nonrefundable EITC. For instance, if the household earned $45,000, they would owe $216 in state taxes. This reduces the "excess" credit available for refund, but net income still increases by $273, making their total EITC benefit $489 under House Bill 3492. At roughly $50,000, the household's tax liability exceeds the EITC's value, meaning there is no longer any excess and the bill provides no additional value. The SC EITC fully phases out near $52,000 of earnings for this family.

Figure 1 displays the total SC EITC benefit that a single parent with one child would receive under current law and H.3492 as employment earnings rise.

For tax year 2026, H.3492 would cost the state $402 million according to PolicyEngine's static modeling.

The proposal would raise the net income of 25.1% of South Carolina residents, with gains concentrated among those in the bottom half of the state's income distribution. Additionally, 9.4% of residents would see an increase of over 5% in their net income, including 29% of those in the 2nd income decile.

H.3492 would provide an average benefit of $212 per South Carolina household. Tax savings are concentrated in deciles 2 through 4, with benefits falling as household income rises.

We project that H.3492 would reduce poverty by 2.6% and child poverty by 5.4%. The larger child poverty reduction reflects the structure of the federal EITC, which provides a higher benefit amount to families with children.

H.3492, which makes 25% of South Carolina's excess EITC refundable, would cost $402 million in tax year 2026. One-quarter of residents would benefit, with gains concentrated in the bottom half of the income distribution. The bill would reduce child poverty by 5.4% statewide and lower the Gini index of income inequality by 0.4% in the state.

As policymakers evaluate reforms such as this, analytical tools like PolicyEngine offer critical insights into the impacts on diverse household compositions and the broader economy.

We invite you to explore our additional analyses and use PolicyEngine to calculate your own tax benefits or design custom policy reforms.