One benefit of a catastrophe savings account is that the amount placed in the account reduces the taxpayer's South Carolina taxable income and, as a consequence, reduces the South Carolina income tax that has to be paid.
The amount contributed to the catastrophe savings account should be included with “other subtractions” in Part 2 - Subtractions from Federal Taxable Income on the SC 1040 form.
Tom established a catastrophe savings account and deposited $6,000. Tom’s federal taxable income is $40,000 and this amount is reported on his South Carolina Form SC 1040, Line 1. Tom’s $6,000 contribution will be subtracted under “Other Subtractions” in Part 2 - Subtractions from Federal Taxable Income. His South Carolina taxable income is reduced from $40,000 to $34,000 based on the contribution. This is only a deduction for South Carolina income tax purposes; it is not a deduction for federal income tax purposes.