What actually happens
An employee who lives in North Carolina and performs work in South Carolina sits in two tax systems at once. The residence state claims the right to tax all of a resident's income wherever earned; the work state claims the right to tax income sourced within its borders. Absent an agreement, both claims stand, and the conflict is resolved after the fact through a credit on the resident return rather than up front in payroll.
When South Carolina withholding starts
South Carolina applies a de minimis test $800 of in-state wages before nonresident withholding begins. COST's multistate chart reports an $800-per-calendar-year South Carolina wage threshold for nonresident employee withholding. The SCDOR Withholding Tax Information Guide (WH-105) as fetched did not state this figure -- treat as unconfirmed and verify with SCDOR before relying on it.
The trap is that thresholds are usually retroactive to the first day once crossed. An employee who spends 40 days in a 30-day-threshold state does not owe tax on 10 days; they owe it on all 40, and the employer is the one who failed to withhold.
Unemployment insurance goes to one state only
Income tax can be split between states. Unemployment insurance cannot. Under the localization test used by every state, an employee whose services are performed entirely in South Carolina is covered by South Carolina for unemployment purposes, and all wages are reported there — regardless of where they live, where you are headquartered, or which state's income tax you withhold. South Carolina's 2026 taxable wage base is $14,000. The four-factor test in order.
What you have to register for
| Obligation | State | Agency |
|---|---|---|
| Income tax withholding | South Carolina | South Carolina Department of Revenue |
| Unemployment insurance | South Carolina | South Carolina Department of Employment and Workforce (DEW) |
Frequently asked
Do South Carolina and North Carolina have a reciprocal tax agreement?
No. There is no reciprocal agreement between South Carolina and North Carolina. South Carolina taxes wages earned in the state by nonresidents, and North Carolina taxes the same wages as resident income while allowing a credit for tax paid to South Carolina.
Which state's income tax should be withheld?
South Carolina, as the state where the work is performed. North Carolina also taxes the income as a resident, but the employee claims a credit on the North Carolina return for tax paid to South Carolina.
Which state gets the unemployment insurance wages?
South Carolina. Unemployment coverage is never split between states for a single job. The localization test assigns the whole job to the state where services are performed, which here is South Carolina, regardless of residence or where the employer is headquartered.
How many days can an employee work in South Carolina before withholding starts?
South Carolina applies a de minimis test of $800 in wages. Once the limit is crossed, most states require withholding on all in-state wages for the year, not just the excess.