What National Guard and Reserve pay could be subtracted from South Carolina taxable income under the 2009 guidance?

Plain-English summary

The South Carolina Department of Revenue explained a state subtraction for National Guard and U.S. Armed Forces Reserve compensation that was generally taxable federally. Qualifying pay covered customary annual training, weekend drills, and other inactive-duty training.

For part-time members, the annual-training portion was limited to 15 days for a Guard member or 14 days plus official travel time for a Reservist. Pay for all weekend drill or assembly periods actually completed could qualify, as could actual other inactive-duty training, without a fixed annual-period cap stated for those categories.

A Guard or Reserve member called to active duty could subtract 15 days of active-duty pay if annual-training pay was not also excluded for that year. The subtraction could never exceed taxable military pay reported on the member's W-2 and could not offset a spouse's or other income.

What this means for you

Part-time Guard and Reserve members

Track official annual-training orders, drill or assembly periods, other inactive-duty training, pay statements, and travel days. The deduction followed actual qualifying activity and pay.

Activated members

The ruling did not create a broad exclusion for all active-duty pay. It allowed the stated 15-day substitute when the annual-training exclusion was not used; federally excluded combat pay required no separate South Carolina subtraction.

Active Guard and Reserve personnel

The ruling applied special limits because AGR personnel did not receive extra pay for drills and annual training. Its historical calculation capped the described adjustment at 15 annual-training days plus 24 drill days.

Common questions

Q: Did weekend drill pay qualify?
A: Yes, for the actual drill or assembly periods completed; the ruling did not cap this at the typical 48 periods.

Q: Did State Guard members qualify?
A: No. The ruling distinguished the State Guard from the National Guard and described a separate statutory deduction for qualifying State Guard members.

Q: What if a member was activated before annual training?
A: The ruling allowed 15 days of active-duty pay as the annual-training equivalent, plus qualifying drills actually completed before activation.

Q: Could the subtraction exceed W-2 military wages?
A: No. It was limited to taxable military compensation on the member's W-2.

Q: Was combat pay subtracted again?
A: No. To the extent it was already excluded federally and from South Carolina income, no additional state subtraction was made.

Citations and references

• S.C. Code § 12-6-1120(7) (annual training, weekend drills, inactive-duty training, and active-duty substitute)
• S.C. Code §§ 12-6-40 and 12-6-50 (federal conformity provisions discussed)
• Internal Revenue Code §§ 61, 112, and 134 (taxable compensation, combat pay, and military fringe benefits)
• 10 U.S.C. §§ 101 and 10147 and 32 U.S.C. §§ 101 and 502 (Guard and Reserve definitions and training referenced)
• SC Technical Advice Memorandum 89-16 (superseded by this ruling)

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/RR09-16.pdf

Original ruling text

State of South Carolina

Department of Revenue
301 Gervais Street, P. O. Box 125, Columbia, South Carolina 29214
Website Address: http://www.sctax.org

SC REVENUE RULING #09-16

SUBJECT:

Certain Nontaxable National Guard or Reserve Pay
and Withholding for South Carolina Income Tax Purposes
(Income and Withholding Taxes)

EFFECTIVE DATE:

Applies to all periods open under the statute.

SUPERSEDES:

SC Technical Advice Memorandum #89-16

REFERENCES:

S. C. Code Ann. Section 12-6-1120(7) (Supp. 2000)

AUTHORITY:

S. C. Code Ann. Section 12-4-320 (Supp. 2008)
S. C. Code Ann. Section 1-23-10(4) (Supp. 2008)
SC Revenue Procedure #09-3

SCOPE:

The purpose of a Revenue Ruling is to provide guidance to
the public and to Department personnel. It is an advisory
opinion issued to apply principles of tax law to a set of
facts or general category of taxpayers. It is the
Department’s position until superseded or modified by a
change in statute, regulation, court decision, or another
Departmental advisory opinion.

INTRODUCTION:
South Carolina’s income tax laws regarding the taxation of military servicemembers are
very similar to federal income tax laws. For example, basic pay and reenlistment bonuses
are taxable under both federal and South Carolina income tax laws, unless earned in a
combat zone (see Internal Revenue Code Sections 61 and 112 and SC Code Sections 126-40 and 12-6-50). Generally combat pay and certain fringe benefits, such as housing
allowances and subsistence allowances, are not included in federal or South Carolina
taxable income (see Internal Revenue Code Sections 112 and 134 and SC Code Sections
12-6-40 and 12-6-50). One difference, however, is the taxation of a National Guard or
United States Armed Forces Reserve member’s pay for customary annual training,
weekend drills, and other inactive duty training. This pay is subject to federal income tax,
but it is generally exempt from South Carolina income tax (see South Carolina Code
Section 12-6-1120(7)).
1

The purpose of this advisory opinion is to address questions concerning the eligibility of
a servicemember for this income exclusion on the South Carolina income tax return
(referred to in this advisory opinion as a South Carolina adjustment or subtraction), to
provide guidance on the South Carolina income adjustment computation and amount,1
and to publish the federal government’s procedure on withholding South Carolina income
taxes on a South Carolina servicemember’s pay (see Question 11.)
LAW:
South Carolina Code Section 12-6-1120(7) provides that South Carolina gross income
does not include compensation received from the United States or any state for service in
a National Guard or a reserve component of the Armed Forces of the United States for (1)
the customary annual training period not to exceed 15 days for guard members or 14 days
plus travel time for reserve members, (2) weekend drills, and (3) other inactive duty
training.
The statute further provides that for National Guard or reserve members called to active
duty, South Carolina gross income does not include 15 days of active duty pay received,
providing any pay received for completing the annual training period is not excluded on
the South Carolina tax return for the tax year.

QUESTIONS AND ANSWERS:
General Provisions:

1. Q. Who qualifies for the income adjustment in Code Section 12-6-1120(7)?
   A. The following servicemembers qualify for the South Carolina income adjustment:
2. A member of the “National Guard” (i.e., Army National Guard or Air
   National Guard )2. This includes a full time federal civil service employee

1

Federal taxable income is the starting point for determining South Carolina taxable income.
There are a variety of adjustments on the South Carolina income tax return; adjustments are either
an increase or decrease to federal taxable income reported on the South Carolina tax return. This
exclusion is a subtraction on the SC Form 1040 and reduces the servicemember’s income subject
to South Carolina tax.
2

For purposes of this advisory opinion, members of the National Guard of any state (e.g., the
South Carolina National Guard, the Georgia National Guard, the Mississippi National Guard)
qualifying for the exclusion in Code Section 12-6-1120(7) are referred to as National Guard
servicemembers. See United States Code Title 10 (Armed Forces) and Title 32 (National Guard),
specifically 32 U.S.C.A. Sections 101 and 502 (definitions and required drills and exercises,
respectively) and 10 U.S.C.A. Sections 101 and 10147 (definitions and ready reserve training
requirements, respectively.)

2

who is also a part time National Guard servicemember. It does not include a
“State Guard” member.3

2. A member of a reserve component of the Armed Forces of the United States
   (i.e., the Army, Navy, Air Force, Marine Corps, or Coast Guard), referred to
   in this advisory opinion as a “Reservist.”

3. Active Guard and Reserve personnel (referred to as “AGR”).4 AGR personnel
   are full time permanent federal employees on full time active duty status who
   are assigned to the National Guard or Reserves to provide support for the
   purpose of organizing, administering, recruiting, or training. AGR personnel
   are members of the National Guard or Reserve as a condition of their federal
   employment and are required to participate in annual training and weekend
   drills; they do not receive additional compensation for the annual training or
   weekend drills.

4. Q. What training activities qualify for the South Carolina income adjustment and
   what pay does a servicemember receive for these activities?
   A. The following training activities qualify for the South Carolina income
   adjustment, subject to the time and pay limitations discussed in Question 3:

5. Customary annual training period completed (also referred to as “active duty
   for training” or “ADT”). For National Guard members, this training period is
   usually 15 days per year, but can be 21 days or more in certain situations, such
   as training outside the United States. For Reservist, this training period is
   usually 14 days, but can be up to 29 days.
   A servicemember is issued official orders to report to active duty for training
   for the period shown on the orders. Basic pay is received for the customary
   annual training period, except for AGR personnel. AGR personnel do not
   receive additional compensation for the annual training period.

3

CAUTION: The South Carolina National Guard is not the same as the South Carolina Guard. A
servicemember that is a member of the South Carolina Guard (i.e., State Guard) does not qualify
for the exclusion in Code Section 12-6-1120(7). A State Guard member may qualify for an annual
income tax deduction of up to $3,000 per year as provided in Code Section 12-6-1140. To
qualify, a State Guard member must complete at least 16 hours of training or drill each month
(192 hours per year) and the member’s commanding officer must certify in writing to the member
that these requirements have been met.
4

See 10 U.S.C.A. Section 101(b)(17) for the definition of the term “Active Guard and Reserve,”
10 U.S.C.A. Section 12301(d), and 32 U.S.C.A. Section 502(f).

3

2. Weekend drills completed (referred to as inactive duty training or “IDT” by
National Guard members or as Battle Assembly Training or “BA” by
Reservists). A servicemember (except AGR personnel) is not on active duty at
weekend drills or battle assemblies. In general, weekend drills and battle
assemblies are held one weekend per month.
For National Guard members, weekend drills are divided into drill periods.
For example, Saturday a.m. is one drill, Saturday p.m. is one drill, Sunday
a.m. is one drill, and Sunday p.m. is one drill. As a result, a National Guard
member completing 4 drill periods in one weekend receives one day of basic
pay for each of the 4 drills (in other words, the pay received for Saturday is
twice the servicemember’s daily pay rate and the pay received for Sunday is
twice the servicemember’s daily pay rate.)
A Reservist receives credit for 4 multiple unit training assembly’s
(“MUTA’s”) for completing one weekend battle assembly training. As a
result, a Reservist completing 4 MUTA’s in one weekend receives one day of
basic pay for each of the 4 MUTA’s (in other words, the pay received for
Saturday and the pay received for Sunday is each twice the servicemember’s
daily pay rate.)
Basic pay is received for each drill period or MUTA, except for AGR
personnel. AGR personnel do not receive additional compensation for
weekend drills.

3. Other inactive duty training completed (referred to as “IDT”). Examples of
   other inactive duty training include readiness management periods, mandatory
   training requirements, such as flight training hours required for pilots, and
   special soldier training, such as simulator shooting training for a
   servicemember assigned to tank detail.
   Basic pay is received for inactive duty training. Usually, these training periods
   are a minimum of 4 hours.

4. Q. Are there limitations on the amount of training or pay that may be excluded?
   A. Except as otherwise provided, the South Carolina income adjustment applies to
   the actual amount of federal taxable pay received for the customary annual
   training period (subject to certain limitations), weekend drills, and other inactive
   duty training. The limitations are as follows:

5. Customary Annual Training period (general rule for part time
   servicemembers) – the South Carolina income adjustment for pay received for
   customary annual training may not exceed:
   (a) 15 days of annual training for a National Guard member and

4

(b) 14 days of annual training plus travel time for a Reservist.
Multiple Annual Training Periods in a Tax Year. It is possible for a
servicemember attending annual training based upon the federal government’s
fiscal year to attend two annual training periods in one tax year (Year 1) and
no annual training period in the subsequent tax year (Year 2). The South
Carolina income adjustment is allowed for all annual training periods attended
in the current tax year (Year 1) but may not exceed 15 annual training days for
any National Guard member and 14 annual training days (plus travel time) for
a part time Reservist. In this example, the South Carolina adjustment in the
subsequent tax year (Year 2) would only apply to weekend drills and any
other inactive duty training actually completed in Year 2.
Full time Active Duty (exception to general rule). Code Section 12-6-1120(7)
provides that for National Guard or reserve members called to active duty,
South Carolina income does not include 15 days of active duty pay received,
providing any pay received for completing the annual training period is not
excluded on the South Carolina tax return for the tax year. See Question 4
below for the South Carolina income adjustment for 15 days of active duty
pay received by a National Guard member or 15 days of active duty pay
received by a Reservist activated to full time active duty (this adjustment may
be viewed as the “equivalent” of the customary annual training period
exclusion allowed for a part time National Guard or Reservist discussed
above.) The income adjustment cannot exceed the amount of taxable pay on
the servicemember’s W-2.

2. Weekend drills (general rule) – the South Carolina income adjustment applies
   to the actual number of drill/assembly periods completed; it is not limited to a
   specific number of drill periods or assembly periods. In general, a National
   Guard member completes 4 drill periods per weekend each month or a total of
   48 drill periods per year (4 x 12); in general, a Reservist completes 4 multiple
   unit training assembly periods per weekend or a total of 48 assembly periods
   per year.
   The weekend drill amount qualifying for the exclusion when the typical 48
   drill periods or assembly periods are not completed are as follows:
   Servicemember attends more than 48 weekend drill periods. If weekend drills
   or assembly periods are completed more frequently than one time per month
   or exceed 48 drill periods per year or 48 assembly periods per year, then the
   South Carolina adjustment is allowed for pay received for all weekend drill
   periods or assembly periods actually completed in the current tax year. It is
   not limited to any specific number of drill periods or assembly periods.

5

Servicemember attends no weekend drills. If a National Guard servicemember
or Reservist does not actually complete any weekend drills or assembly
periods, then there is no South Carolina income adjustment allowed on the
South Carolina income tax return.
Servicemember attends some but less than 48 weekend drill periods. Further,
if a portion, but not all, of the scheduled weekend drills or assembly periods
are completed during the tax year (for example a servicemember cannot
participate in the remaining drills due to an illness in November or a reservist
is new to the unit in November), then the South Carolina adjustment is
allowed only for the actual weekend drills or assembly periods completed (in
the second example the adjustment is allowed for the drills or periods
completed in November and December.)

3. Other inactive duty training – The South Carolina income adjustment is not
   limited to a specific number of training days. The adjustment applies to the
   actual number of inactive duty training periods completed. If a servicemember
   does not actually attend inactive duty training, then there is no South Carolina
   income adjustment.
   NOTE: See Appendix 1 for more examples of the eligible income adjustment
   for each type of servicemember who is performing different amounts of
   training activities.
   Adjustment Determination and Substantiation:
4. Q. What pay amounts received for qualifying training activities are not subject to
   South Carolina income tax and are subtracted on the South Carolina individual
   income tax return?
   A. The following chart is a brief summary written in general terms to illustrate the
   maximum amounts of each qualifying training activity (shown in days or periods)
   that may be subtracted from the South Carolina income tax of each category of
   qualifying servicemember (e.g., National Guard, Reservist, AGR, part time, full
   time, etc.) The income adjustment allowed cannot exceed the amount of taxable
   pay on the servicemember’s W-2.
   Note: In general, the amount of compensation received for these training activities
   is taxable for federal income tax purposes. An exception applies to combat pay
   which is generally nontaxable for federal and South Carolina income tax
   purposes.
   See Appendix 1 for common rules and calculation examples of the income
   adjustment amount that would be made on the servicemember’s South Carolina
   individual income tax return (SC 1040).

6

National Guard
(Part time)7
(Includes a full time
federal civil service
employee who is a
part time National
Guard)
Reservist
(Part time)8

National Guard or
Reservist
(on active duty,
outside combat zone,
all year)
National Guard or
Reservist
(on active duty in a
combat zone all
year)

Customary Annual
Training Period
(“ADT”)5
Actual amount paid, not
to exceed 15 days of daily
pay for annual training
per year, is subtracted on
the SC1040.

Weekend Drills or Battle
Assembly Training
(“IDT”)6
Actual amount paid;
typically the daily pay rate
for 48 drill periods per year
(i.e., 4 drill periods per
weekend) is subtracted on
the SC1040.

Other Inactive Duty
Training (“IDT”)

Actual amount paid, not
to exceed 14 days of daily
pay for annual training
per year (plus travel
time), is subtracted on the
SC1040.
15 days of active duty
pay is subtracted on the
SC1040.

Actual amount paid;
typically the daily pay rate
for 48 multiple unit training
assemblies (i.e., 4 training
assemblies per weekend) is
subtracted on the SC1040.
None. This SC adjustment
does not apply.

Actual amount paid for
other inactive duty
training is subtracted on
the SC1040.

Actual amount paid for
other inactive duty
training is subtracted on
the SC1040.

None. This SC
adjustment does not
apply.

This SC adjustment does None. This SC adjustment
None. This SC
not apply and no
does not apply.
adjustment does not
adjustment is made on the
apply.
SC1040 to the extent
combat pay is exempt
from federal income tax.
A subtraction on the
Actual amount paid for
Actual amount paid for
National Guard or
SC1040 for the actual
weekend drills or multiple
other inactive duty
Reservist
(on active duty some amount paid for annual
unit training assemblies
training actually
of year and part time training actually attended, actually attended. If none
attended. If none
some of year)
not to exceed 15 days of
attended, the SC adjustment attended, the SC
pay for National Guard or does not apply.
adjustment does not
14 days (plus travel time)
apply.
for Reservist or if not
applicable, then15 days
of active duty pay is
subtracted for National
Guard or Reservist.
Actual amount paid, not
Actual amount paid, not to
None. This SC
Active
to exceed 15 days of
exceed 24 days of daily pay adjustment does not
Guard and
active duty pay per year,
for weekend drills (i.e. 12
apply.10
Reserve (“AGR”)
9
is subtracted on the
weekends).
SC1040.
Note: Any income adjustment illustrated in the above chart cannot exceed the taxable pay on
the servicemember’s W-2.
5

The customary annual training period is also referred to as active duty for training or ADT.
The weekend drills or battle assemblies are referred to as inactive duty training or IDT for National Guard
members or Battle Assembly Training or BA for Reservists.
7
For purposes of this advisory opinion, a “part time” National Guard member or a “part time” Reservist is a
servicemember who attends the customary annual training, weekend drills or battle training assemblies, and
other inactive duty training (i.e., their only active duty is the customary annual training period.)
8
See Footnote #7.
9
This is the longstanding position of the Department as provided in SC Technical Advice Memorandum #89-16.
10
See Footnote #9.
6

7

5. Q. How is the basic pay or daily drill pay amount determined when computing the
South Carolina income adjustment amount for qualifying servicemember’s
training?
A. Basic pay and drill pay are based on a servicemember’s grade and length of
service. For “part time” National Guard and Reservist (i.e., those attending only
the customary annual training period for no more than 15 days (14 days plus
travel for a Reservist)), weekend drills or assembly periods, and other inactive
duty training), the amount reflected on the servicemember’s W-2, “Wage and Tax
Statement” line 16, “State wages, tips, etc. may contain the appropriate pay
amount to subtract as the income adjustment on the SC 1040.
For others and those who may not know their daily pay rate, it may be necessary
to refer to the pay rate schedules published by the Defense Finance and
Accounting Service (“DFAS”) at www.dfas.mil when making the South Carolina
income adjustment on the SC 1040. The DFAS published pay charts are available
for both monthly “basic pay” (showing pay for a 30 day period) and “drill pay”
(showing pay for a 30 day period, pay for 1 drill, and pay for 4 drills, i.e., the
entire weekend) as appropriate for a servicemember’s rank and years of service.
The daily pay for any monthly period can also be computed as 1/30 of the
monthly “basic pay”.) For example, if the 2009 “basic pay” is $1,993.50 for a
Grade E-5 with 2 or less years service, then the “daily pay” for that
servicemember to use in computing the South Carolina adjustment is $66.45
($1,993.50 x 1/30). For example, assume this National Guard member is a
resident of South Carolina and only attends 15 days of annual training and 12
weekends of weekend drills (i.e., 4 drill periods per weekend x 12 weekends = 48
drill periods qualifying for the income adjustment.) The pay amount used in the
adjustment computation is $66.45 per annual training day and $66.45 per drill
period (i.e., he is paid twice his per day rate for each full day at drill.)
Annual training
Weekend drills
SC 1040 Adjustment Amount

15 days x $66.45 “daily rate”
48 x $66.45 “per drill period”

$ 997
$3,190
$4,187

Note: The Department has determined that the South Carolina adjustment may be
based upon the servicemember’s (1) actual pay rate received for the customary
annual training, weekend drills, and inactive duty training or (2) pay rate at the end
of the tax year. Using the year end pay rate simplifies the computation if a pay raise
is received during the year. In no instance can the income adjustment be more than
the amount of pay reported on the servicemember’s W-2.

8

6. Q. How can a National Guard member calculate and substantiate the number of
qualifying training hours, periods, or days eligible for the South Carolina income
adjustment?
A. To assist servicemembers, the South Carolina National Guard has informed the
Department that it intends to provide all members a year end summary of the
completed customary annual training, weekend drill periods, and other inactive
duty training. For questions regarding the year end summary, please contact the
Comptroller, USPFO (United States Property Fiscal Office) at 803-806-1428.
This information along with the pay rate of the National Guard member is used to
calculate the South Carolina income adjustment amount (see Question 5 for a
discussion on pay rates.) This information should be maintained with the
servicemember’s tax records in the event it is requested by the Department.

7. Q. How can a Reservist calculate and substantiate the number of qualifying training
   hours, periods, or days eligible for the South Carolina income adjustment?
   A. A Reservist should receive a letter from the Department of the Army with orders
   to report to annual training and a memorandum from the Department of the Army
   listing the calendar year battle assembly dates. These letters from the Army or a
   letter from the Reservist’s employer authorizing time allowed off from work for
   training may be used to determine the training activities that qualify for the South
   Carolina income adjustment and the pay rate of the Reservist (see also Question 5
   for a discussion on pay rates.) This information should be maintained with the
   Reservist’s tax records in the event it is requested by the Department.

Form SC 1040 Income Tax Filing and Withholding Rules:

8. Q. My home of record is South Carolina. Since I am a member of the National Guard
   or Reserves in a state other than South Carolina, is my pay for the training
   activities subject to South Carolina tax or eligible for the South Carolina
   adjustment?
   A. Under the Servicemembers Civil Relief Act of 2003 a servicemember’s liability
   for state income tax on service pay is restricted to his state of domicile. Since the
   servicemember is a resident of South Carolina, the income earned for service in
   the National Guard or Reserves in a state other than South Carolina is subject to
   South Carolina tax, to the extent it is not otherwise excluded. A South Carolina
   income tax return (SC 1040) should be filed and the “adjustment” made in the
   same manner as if the servicemember was part of a South Carolina unit.

9

9. Q.

My home of record is a state other than South Carolina. Since I am a member of
the National Guard or a reserve component in South Carolina, is my pay for the
training activities subject to South Carolina tax or eligible for the South Carolina
income adjustment?

A. Under the Servicemembers Civil Relief Act of 2003, compensation of a
servicemember for military service shall not be deemed to be income for services
performed or from sources within a tax jurisdiction of the United States if the
servicemember is not a resident or domiciliary of the jurisdiction in which the
servicemember is serving in compliance with military orders. Since the
servicemember is on military orders while performing annual training in South
Carolina, pay received by the nonresident for annual training is not subject to
South Carolina income tax. Further, pay received for the weekend drills and
inactive duty is not taxable in South Carolina. Providing the servicemember does
not have South Carolina income from other sources, a South Carolina income tax
return (SC 1040) does not need to be filed.

10. Q. If money is withheld from pay I received for annual training, weekend drills or
    battle training assemblies, and other inactive duty training, then how can I get the
    South Carolina income taxes withheld back?
    A. The only way to get all, or any portion, of the withholding back is to file a South
    Carolina income tax return. The servicemember should file a Form SC 1040 to
    report any South Carolina income tax due. The amount withheld is applied against
    any income tax due; any excess withholding is refunded.

11. Q. What is the federal government’s procedure for income tax withholding on a
    South Carolina resident servicemember’s annual training, weekend drills or battle
    training assemblies, and other inactive duty training?
    A. The Department has been informed by the Defense Finance and Accounting
    Service (“DFAS”) that the current procedure of withholding South Carolina
    income taxes on National Guard or Reserve pay for customary training, weekend
    drills, and other inactive duty training that is taxable for federal income tax
    purposes has been revised. A South Carolina resident who is a part time National
    Guard or Reservist on inactive duty training or annual training duty has the option
    to have the federal government withhold, or not withhold, South Carolina income
    taxes on their pay. The revised procedure is set forth below.
    General Procedure. No SC Withholding; SC Withholding only upon Request
    No SC Withholding. A part time National Guard member or Reservist is exempt
    from South Carolina income tax on pay received for (1) customary annual training
    not to exceed 15 days (for guard members) or 14 days plus travel (for reserve
    members), (2) weekend drills, and (3) other inactive duty training. This

10

withholding option allows a part time servicemember who is a South Carolina
resident to request an “exemption” from South Carolina withholding. Withholding
will not resume until a revised Form W-4, “Employee’s Withholding Allowance
Certificate,” is submitted.
Procedure to Request “Exemption” from SC Withholding. To request the
withholding “exemption,” a servicemember should indicate on Form W-4,
“Employee’s Withholding Allowance Certificate” the words “Exempt from SC
Tax.” The exempt reason code to be used is “1.”11 For recordkeeping purposes, it
is recommended that Form W-4 include a statement that the servicemember is
exempt from SC withholding due to inactive duty training or annual training duty
status as a part time National Guard or Reserve member. There will be federal
withholding, but no South Carolina withholding. This “exempt” option is not
applicable to an Active Guard and Reserve Employee. See “caution” below.
Procedure to Change Withholding Request. A servicemember using this
procedure having military pay taxable in South Carolina should begin South
Carolina withholding by completing a new Form W-4, “Employee’s Withholding
Allowance Certificate” and indicating the number of withholding exemptions
claimed. South Carolina income tax will be withheld based on this information. If
exemption again becomes appropriate, a new Form W-4 can be completed using
the above “exemption” procedure and submitted to the pay office. A new Form
W-4 can be submitted to the pay office changing the withholding request as often
as necessary during a calendar year.
The procedure to change an exemption or withholding request is applicable in the
following situations:
A. 1. A servicemember’s number of days on annual training duty exceeds 15
days (for guard members) or 14 days plus travel (for reserve members.) A
new W-4 should be submitted to request South Carolina withholding
begin.

2. The servicemember returns to inactive duty. A new W-4 can be submitted
   to request an “exemption” from South Carolina withholding.
   B. 1. A servicemember reports for duty other than inactive duty training or
   annual training duty. A new W-4 should be submitted to request South
   Carolina withholding begin.

11

The Defense Finance and Accounting Service (“DFAS”) has determined that they will use “Exempt
Reason 1” to allow a SC resident servicemember to request no withholding on Form W-4 on military
income subject to federal income tax but exempt from South Carolina income tax. This reason is normally
used for residency status, but will be used for this purpose since it is not otherwise used for South Carolina.

11

2. The servicemember returns to inactive duty training or annual training
duty not exceeding 15 days (for guard members) or 14 days plus travel
(for reserve members.) A new W-4 should be submitted to request an
“exemption” from South Carolina withholding.
Caution. A servicemember should exercise caution when using this option since
too little South Carolina withholding may result in a servicemember owing taxes
when his South Carolina individual income tax return is filed, needing to file
estimated tax payments, and being subject to penalties or interest. Withholding
too little most often occurs when the part time servicemember receives pay that is
subject to South Carolina income tax, such as when he attends more than 15 days
(or 14 days plus travel) of customary annual training or he is activated or
mobilized.

Alternative Procedure. SC Withholding
A servicemember may request the federal government withhold South Carolina
income taxes on National Guard or Reserve pay, including pay for customary
training, weekend drills, and other inactive duty training, that is taxable for
federal income tax purposes. This option has been the current withholding policy
of the federal government since April 1, 2009.
Procedure to Request SC Withholding. To request withholding, a servicemember
should complete Form W-4, “Employee’s Withholding Allowance Certificate.”
South Carolina income tax will be withheld on National Guard and Reserve
compensation earned for all pay taxable for federal income tax purposes,
including pay for annual training, weekend drills, and other inactive duty training.
The servicemember should file Form SC 1040 to report any South Carolina
income tax due. The withholding is applied against any income tax due and any
excess withholding will be refunded.
Note: A servicemember currently withholding does not have to complete a new
Form W-4 if the information remains correct.

Form SC 1040 Adjustment Rules and Examples:

12. Q. How is the “adjustment” to exclude pay for qualifying training made on the
    servicemember’s South Carolina Form 1040?
    A. Wages paid to a National Guard or Reserve member for customary annual
    training, weekend drills, and inactive duty training are included in a
    servicemember’s federal taxable income. An “adjustment” (i.e, a subtraction from
    federal taxable income) to reduce South Carolina income subject to tax is made
    on the servicemember’s South Carolina individual income tax return (SC 1040)
    for the pay amount qualifying for the adjustment in Code Section 12-6-1120(7).

12

Note: The subtraction on the SC 1040 may not exceed the amount of taxable pay
on the servicemember’s W-2 (e.g., it may not be used to offset a servicemember’s
income from other sources or a spouse’s income, if any.)
Where the adjustment is made on the SC 1040 depends on whether the
servicemember is a South Carolina resident or not, as explained in the following
questions.

1. Resident Taxpayer. If the servicemember is a South Carolina resident
   taxpayer, the adjustment is currently made on Form SC 1040, page 2, line 46,
   “National Guard or Reserve annual training and drill pay.”

2. Nonresident Taxpayer. If the servicemember is a South Carolina nonresident
   taxpayer, the adjustment is currently made on Form SC 1040, Schedule NR,
   page 2, line 40, “Other Subtractions.” See Question 9 for nonresident
   taxpayer filing requirements.

3. Q. Can the Department provide some examples illustrating the calculation of the
   income adjustment on the South Carolina Form 1040 for different training
   scenarios?
   A. Below are four examples that illustrate the income adjustment for the following
   servicemembers:
   Example 1 – A part time National Guard member (i.e., a servicemember attending
   only the annual training, weekend drills, and other inactive duty training.)
   Example 2 – A National Guard member on active duty in a combat zone for the
   entire tax year
   Example 3 – A National Guard member or Reservist ordered for active duty
   during the tax year before completing annual training
   Example 4 - Active Guard and Reserve personnel (AGR) (i.e., full time,
   permanent active duty status federal employees assigned to the National Guard or
   Reserves)

13

EXAMPLE 1 – Part Time National Guard Member – SC 1040 Adjustment Calculation
Assume the South Carolina resident taxpayer is a part time National Guard
servicemember (Grade E-5 with 2 or less years service). He attends annual training and
weekend drills (12 weekends or 48 drill periods); he attends no other inactive duty
training during the tax year. His drill pay is $66.45 per drill period (i.e., he is paid twice
his per day rate for each full day at drill.) For annual training compensation, his annual
pay is $1,993.50 per month or $66.45 per day. What amount may be subtracted from
federal taxable income on his South Carolina individual income tax return?
Annual training
Annual training – travel time
Weekend drills
Other Inactive Duty
SC 1040 Adjustment Amount
(Amount subtracted on the SC 1040)

15 days x $66.45 daily rate
n/a to National Guard
48 x $66.45 per drill period
None attended this year12

$ 997
n/a
$3,190
$0
$4,187

EXAMPLE 2 - Active Duty for Entire Year (In a combat zone all year) – SC 1040
Adjustment Calculation
Assume that last year the National Guard servicemember received mobilization orders for
18 months (including the entire current tax year.) He is in a combat zone for the entire tax
year. If his year of combat pay is not taxable for federal and South Carolina tax purposes,
then there is no SC adjustment to make.
EXAMPLE 3 – Active Duty for a Portion of the Year (Annual Training Not
Completed) – SC 1040 Adjustment Calculation
Assume the National Guard servicemember (Grade E-5 with 2 or less years service)
received mobilization orders to go to Texas on April 1 and was not sent to a combat zone
during the tax year. The servicemember attended weekend drills from January – March (3
weekends with each having 4 drill periods for a total of 12 drill periods). He has not
attended annual training, and is therefore allowed to reduce his South Carolina taxable
income by 15 days of active duty pay (referred to in this advisory opinion as an “annual
training equivalent.”) His basic pay per month is $1,993.50 or $66.45 per day ($1,993.50
x 1/30.) His drill pay is 66.45 per drill period (i.e., he is paid twice his per day rate for
each full day of drill attended.) What amount may be subtracted from federal taxable
income on his South Carolina individual income tax return?
Annual training “equivalent”
Annual training – travel time
Weekend drills (3 months x 4 drill periods
per month = 12 drill periods)
Other Inactive Duty
SC 1040 Adjustment Amount
(Amount subtracted on the SC 1040)

15 days x $66.45 daily rate
n/a
12 x $66.45 per drill period

$ 997
n/a
$ 797

none

$0
$1,794

12

If the servicemember had completed other inactive duty, the $66.45 daily pay rate would be used for the
income adjustment.

14

EXAMPLE 4 – Active Guard and Reserve (AGR) personnel – SC 1040 Adjustment
Calculation
Assume an Active Guard and Reserve personnel (Grade 0-1 with over 6 years service but
not over 8 years service) attends annual training and all weekend drills (2 days per month
for 12 months). His monthly basic pay is $3,340.50 or $111.35 per day. As a full time
active duty servicemember he does not receive additional compensation for attending
these training activities (i.e., he does not receive twice his per day rate for each full day at
drill.) What amount may be subtracted from federal taxable income on his South
Carolina individual income tax return?
Annual training
Annual training – travel time
Weekend drills
Other Inactive Duty
SC 1040 Adjustment Amount
(Amount subtracted on the SC
1040.)

15 days x $111.35 daily rate
n/a to AGR
24 days x $111.35 daily rate
n/a to AGR

$1,670.25
n/a
$2,672.40
n/a
$4,342.65

Tax Resources and Questions:
Federal Income Tax Resources and Questions. Federal income tax questions concerning
military servicemembers should be directed to the Internal Revenue Service at 1-800829-1040. Military personnel affected by the federal combat zone rules should contact
the Internal Revenue Service at 1-866-562-5227 for assistance. Federal income tax forms
and instructions can be obtained on the Internal Revenue Service’s website at
www.irs.gov.
South Carolina Income Tax Resources and Questions. Information regarding South
Carolina income tax statutes, Department advisory opinions, income tax forms, and form
instructions can be obtained on the Department’s website at www.sctax.org. Relevant
advisory opinions can be found in the “Income Taxes” section of the advisory opinion
index under the category “Military Personnel.”
South Carolina income tax questions concerning military servicemembers and the South
Carolina income adjustment should be directed to the Department’s Research and Review
Section at 803-898-5838.

SOUTH CAROLINA DEPARTMENT OF REVENUE

s/Ray N. Stevens
Ray N. Stevens, Director
November 17
, 2009
Columbia, South Carolina
15

Appendix 1
Adjustment Rules and Form SC 1040 Calculations
Below are common rules to assist the following servicemembers determine the South
Carolina income adjustment amount for annual training, weekend drills, and other
inactive duty training on their SC 1040:
General Rules – Part time National Guard or Reservist
Special Rules – Activated National Guard or Reservist for Entire Tax Year
– Both Part Time and Activated National Guard or Reservist for Tax Year
– Active Guard and Reserve Employee (AGR)
GENERAL RULES - Part time National Guard or Reservist
These general rules and calculations apply to a part time National Guard or Reservist,
including a full time federal civil service employee also in the National Guard or
Reserves. The examples are intended to illustrate the training activities and pay eligible
for the South Carolina income adjustment.
I am a servicemember listed
below performing
CUSTOMARY ANNUAL
TRAINING:

If I receive pay for
completing the
activity listed below

Then the amount of pay
subtracted on the SC tax
return and not subject to
SC tax is

1. Part time National Guard

15 days of annual
training
21 days of annual
training

15 days of pay at your basic
daily pay rate
15 days of pay at your basic
daily pay rate (adjustment is
capped at 15 days)
7 days of pay at your basic
daily pay rate (adjustment is
limited to 15 days or actual
days attended, whichever is
less)
14 days of pay at your basic
daily pay rate plus pay for 2
travel days indicated on orders
at your basic daily pay rate
14 days of pay at your basic
daily pay rate (0 travel days
since none are listed on
orders)

2. Part time National Guard

3. Part time National Guard

7 days of annual
training

4. Part time Reservist

14 days of annual
training (plus 2 travel
days listed on official
orders)
29 days of annual
training
(no travel days listed
on official orders)

5. Part time Reservist

16

I am a servicemember listed
below performing
WEEKEND DRILLS:

If I receive pay for
completing the activity listed
below

1. Part time National Guard or
   Reservist

48 periods of drills or
training assemblies (12
weekends)
56 periods of drills or training
assemblies (14 weekends)

2. Part time National Guard
   or Reservist

I am a servicemember
performing OTHER
INACTIVE TRAINING
DUTIES:

1. Part time National Guard
   or Reservist
2. Part time National Guard
   or Reservist

If I receive pay for
completing the activity listed
below
Management Preparedness
Day – 1 per month or 12 total
Pilot Flights – 36 additional
drill periods

Then the amount of pay
subtracted on the SC tax
return and not subject to SC
tax is
48 drill periods or training
assemblies at your basic daily
pay rate
56 drill periods or training
assemblies at your basic daily
pay rate
Then the amount of pay
subtracted on the SC tax
return and not subject to SC
tax is
12 days of pay at your basic
daily pay rate
Pay for 36 drill periods at your
basic daily pay rate

SPECIAL RULE 1 – Activated for Entire Tax Year
These rules and calculations apply to a servicemember (National Guard or Reservist)
activated for the entire tax year. The examples are intended to illustrate: (1) the training
activities and pay eligible for the South Carolina income adjustment (even though no
annual training, weekend drills, or other inactive duty training were attended) and (2)
calculating the adjustment that is subtracted on the SC 1040.
If I am a full time active duty
servicemember in the following
location

1. Activated or Mobilized for the
   entire tax year but not in a combat
   zone

2. Activated or Mobilized in a
   combat zone for part of the year
   and out of a combat zone for part
   of the year

3. Activated or Mobilized in a
   combat zone for entire year

Then the amount of pay subtracted on the SC tax return
and not subject to SC tax under Code Section 12-61120(7) is
15 days of active duty pay13
(this is the equivalent of the adjustment for annual training
made by qualifying part time servicemembers illustrated in
the general rules above)
15 days of active duty pay;14 the income adjustment cannot
be more than the amount of taxable pay reported on the
servicemember’s W-2.
(This is the equivalent of the adjustment for annual training
made by qualifying part time servicemembers illustrated in
the general rules above).
To the extent combat pay is exempt from federal income
tax, it is also exempt from SC income tax. Accordingly,
there is no SC income adjustment since the pay is not
taxable for federal income tax purposes.

13

There is no “equivalent” adjustment for weekend drills, other inactive duty training, or travel
time (for Reservist) for these activated servicemembers.
14

See Footnote #13.

17

SPECIAL RULE 2 – Both Part Time and Activated in Tax Year
These rules and calculations apply to a servicemember (National Guard or Reservist) that
is both a part time National Guard member or Reservist during a portion of the tax year
and activated during a portion of the tax year. The examples are intended to illustrate: (1)
the training activities and pay eligible for the South Carolina income adjustment and (2)
calculating the adjustment that is subtracted on the SC 1040.
I am a servicemember
on active duty

1. National Guard
   activated or mobilized
   for part of tax year (in a
   combat zone or not in a
   combat zone)

2. Reservist activated or
   mobilized for part of tax
   year (in a combat zone
   or not in a combat zone)

3. National Guard or
   Reservist activated or
   mobilized for part of tax
   year (in a combat zone
   or not in a combat zone)

If I receive pay for
these activities listed
below
15 days of annual
training and 8 drill
periods were
completed before
activation
14 days of annual
training plus 2 travel
days on orders and 8
training assemblies
were completed
before activation
No customary annual
training was
completed before
activated; 36
drill/assembly
periods were
completed before
activation

18

Then the amount of pay subtracted on
the SC tax return and not subject to SC
tax is
15 days of annual training pay and pay for
the actual number of drill periods
completed (8 in this example)

14 days of annual training pay plus 2
travel days pay and pay for the actual
number of training assemblies completed
(8 in this example)

15 days of active duty pay (this is the
equivalent of the adjustment for annual
training made by qualifying part time
servicemembers illustrated in the general
rules above) and pay for 36 drill/assembly
periods actually completed (not 48
scheduled drill/assembly periods). The
income adjustment cannot be more than
the amount of taxable pay reported on the
servicemember’s W-2.

SPECIAL RULE 3 – Activated Guard and Reserve Employee (AGR)
These rules and calculations apply to a full time Active Guard and Reserve employee
(AGR). The examples are intended to illustrate: (1) the training activities and pay
eligible for the South Carolina income adjustment and (2) calculating the adjustment that
is subtracted on the SC 1040. Reminder: As a full time active duty servicemember, an
AGR employee does not receive additional compensation for attending these training
activities (i.e., an AGR employee does not receive twice the per day rate for each full day
at drill or battle assembly.)
I am a full time AGR employee and I
attend the following training activities
as a condition of my employment

1. 15 days of annual training and 24 days
   of weekend drills (48 drill periods)
2. 21 days of annual training and 30 days
   of weekend drills or battle assemblies (60
   drill periods)

Then the amount of pay subtracted on the
SC tax return and not subject to SC tax is
39 days (15 + 24) of pay at your daily pay
rate
39 days of pay at your daily pay rate (15
days of annual training attended is the
maximum allowed for any AGR and 24 days
of weekend drills attended is the maximum
allowed for any AGR)15

15

This is the longstanding administrative position of the Department as set forth in SC Technical
Advice Memorandum #89-16.

19