Money in a catastrophe savings account earns interest just like money in an ordinary savings account. The interest rate paid on the account is determined by the financial institution offering it.
Interest earnings in a catastrophe savings account are not subject to South Carolina income tax if left in the account or if withdrawn for qualified catastrophe expenses.
Earnings from a catastrophe savings account are reported on the financial institution’s 1099 forms that are sent to account holders and to the Internal Revenue Service (IRS). Some financial institutions may send a separate 1099-INT form for the catastrophe savings account. Others may include the catastrophe savings account interest earnings on a form with other interest-bearing accounts owned by the taxpayer. The amount for the catastrophe savings account should be separately stated by the payor on the 1099-INT form.
Interest earnings must be reported on the federal return and will be subtracted to determine South Carolina taxable income on the SC 1040. This interest should be included with “other subtractions” in Part 2 - Subtractions from Federal Taxable Income on the SC 1040.