Will disability income paid from a pension plan be taxed in South Carolina?
Actually, South Carolina Department of Revenue has stated taxpayers who receive a the pension distribution are allowed "a total and permanent disability retirement income deduction."
Thus, if a disabled taxpayer whose disability retirement income is taxed on their federal return, then that taxpayer may be able to deduct this income from their South Carolina taxable income.
But, South Carolina rules states specifically, that the taxpayer "must be totally and permanently disabled, unable to be gainfully employed in any capacity receiving income from a disability retirement plan, and eligible for the homestead exemption under Section 12-37-250 to qualify. You do not qualify if you are receiving disability income from one job while able to perform another job."
Furthermore, the taxpayer "must attach a copy of the physician's statement establishing that you are permanently and totally disabled."