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1. Why open a catastrophe savings account?

Catastrophe savings accounts allow you to set money aside, state income tax-free, to pay for qualified catastrophe expenses. The account is subject to dollar limitations. The amount you contribute to your catastrophe savings account can be deducted in computing your South Carolina taxable income.

Any interest earned by the catastrophe savings account will be exempt from state income tax and should be subtracted in computing your South Carolina taxable income. If you withdraw funds from your catastrophe savings account to pay for qualified catastrophe expenses, you do not have to include the withdrawal in your South Carolina taxable income.

2. What are qualified catastrophe expenses?

Qualified catastrophe expenses are expenses paid or incurred by reason of a major disaster that has been declared by the governor to be an emergency by executive order. These expenses include payment of insurance deductibles and other uninsured risks of loss from hurricane, rising flood-waters, or other catastrophic windstorm event damage.

Example: Tom has a $1,000 insurance deductible. Tom established a catastrophe savings account. Hurricane Devon made landfall in South Carolina and the governor declared a state of emergency. Tom can withdraw money from his catastrophe savings account to pay for the $1,000 insurance deductible. The $1,000 withdrawal will not be included in his South Carolina taxable income for that year.

3. What are the requirements of a catastrophe savings account?

The account must be labeled as “catastrophe savings account.” A taxpayer can establish only one catastrophe savings account and must specify that the purpose of the account is to cover insurance deductibles and other uninsured risks caused by hurricanes, rising floodwater, or other catastrophic windstorm events.

4. Who can contribute to a catastrophe savings account?

South Carolina residents who own a single family residence (house, condo, townhouse, or modular or mobile home) that qualifies as a legal residence for South Carolina property tax purposes can contribute to a catastrophe savings account.

5. Where can I establish a catastrophe savings account?

Catastrophe savings accounts can be established at a state or federally chartered bank. The account must be kept separate from all other accounts (e.g., checking or savings accounts, IRAs, medical care savings accounts, and so on). It must be maintained specifically for the purpose of qualified catastrophe expenses incurred by the account holder.

The account holder, not the financial institution, is required to maintain documentation to verify that the withdrawals from the catastrophe savings account were used exclusively for qualified catastrophe expenses.

6. Can I invest my catastrophe savings account in stocks and bonds?

No. Your catastrophe savings account can only be an interest bearing account.

7. How much can be deposited in a catastrophe savings account?

View the catastrophe savings account deposits page for information.

8. How do I report contributions to a catastrophe savings account on my South Carolina income tax return?

View the report catastrophe savings account contributions page for information.

9. How much will I save on state income taxes?

View the state income tax savings page for information.

10. Can I transfer money from my regular savings account into a catastrophe savings account?

Yes. Funds contributed to the catastrophe savings account can come from any source. Regardless of the source of the funds, the contribution can be deducted in computing your South Carolina taxable income.

11. How are interest earnings from my catastrophe savings account reported on my tax returns?

View the report interest earnings on tax returns page for information.

12. What records do I need to keep regarding withdrawals from my catastrophe savings account to pay for qualified catastrophe expenses?

Account holders who make a withdrawal from their catastrophe savings account to pay for qualified catastrophe expenses should keep records to verify, in case of an audit, that withdrawals were properly used to pay qualifying expenses.

13. What if I withdraw the money in my account for purposes other than qualified catastrophe expenses?

View the unqualified catastrophe expenses page for information.