The Sixteenth Amendment to the U.S. Constitution is the provision that authorizes the federal income tax. Ratified in February 1913, it gave Congress the power to tax incomes “from whatever source derived” without dividing the tax among the states by population.1Congress.gov. U.S. Constitution – Sixteenth Amendment That one sentence is the legal foundation for every W-2, 1099, and Form 1040 filed today, and the individual income tax it made possible now supplies roughly half of all federal revenue.
What the Amendment Actually Says
The full text runs a single sentence: “The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.”1Congress.gov. U.S. Constitution – Sixteenth Amendment
Two phrases carry the weight. “From whatever source derived” is deliberately broad, catching wages, business profits, investment gains, and more. “Without apportionment” is the technical fix that made a workable income tax possible in the first place.
Why the Amendment Was Needed
The original Constitution let Congress collect taxes, but it required “direct taxes” to be split among the states in proportion to their populations. A state with twice the people would owe twice the tax, regardless of how much wealth its residents actually had. For most of the country’s early history, Congress avoided the problem by relying on tariffs and excise taxes, which weren’t treated as direct taxes.
In 1894, Congress passed a law taxing personal and corporate income. The Supreme Court struck it down the next year in Pollock v. Farmers’ Loan & Trust Co., ruling that a tax on income from property was effectively a direct tax that had to be apportioned by population.2Library of Congress. Pollock v. Farmers’ Loan and Trust Company That decision made a broad income tax nearly impossible to administer fairly, since wealthier states with smaller populations would pay far less per capita than poorer, more populated ones.
The Sixteenth Amendment was the direct fix. By removing the apportionment requirement for income taxes, it let Congress tax earnings based on what people actually make rather than where they live.
What Counts as Income
Federal law reflects the amendment’s breadth. Under Title 26 of the United States Code, gross income includes compensation for services, business profits, gains from selling property, interest, rents, royalties, dividends, annuities, and pensions, among other categories.3Office of the Law Revision Counsel. 26 U.S.C. 61 – Gross Income Defined The statutory list is explicitly non-exhaustive. If money comes to you and no specific exclusion applies, it’s taxable.
The scope catches income that surprises many people. Bartering counts. So do gambling winnings, cancelled debts, and many prizes. The tax code then subtracts allowed deductions and exemptions to arrive at “taxable income,” which is the figure your actual tax bill is calculated from.4Office of the Law Revision Counsel. 26 U.S.C. 63 – Taxable Income Defined
What the Amendment Does Not Reach
Not every dollar that reaches you is income for federal tax purposes. A few exclusions matter for most households.
Life Insurance Proceeds
If someone dies and you receive the payout from their life insurance policy, that money is generally not taxable income.5Office of the Law Revision Counsel. 26 U.S.C. 101 – Certain Death Benefits Any interest that accumulates on the proceeds after the insured person’s death is taxable in the year you receive it.
Gifts and Inheritances
Property you receive as a gift or inherit from someone who died is excluded from your gross income.6Office of the Law Revision Counsel. 26 U.S.C. 102 – Gifts and Inheritances The tax burden, if any, falls on the giver, not the receiver. The annual gift tax exclusion for 2026 is $19,000 per recipient. A donor can give up to that amount to any number of people without filing a gift tax return or reducing their lifetime exemption.7Internal Revenue Service. Frequently Asked Questions on Gift Taxes Married couples can combine their exclusions.
Step-Up in Basis on Inherited Property
The inheritance itself isn’t income, but selling inherited property later can trigger capital gains tax. The tax basis of property you inherit is “stepped up” to its fair market value on the date the previous owner died.8Office of the Law Revision Counsel. 26 U.S.C. 1014 – Basis of Property Acquired From a Decedent If your parent bought a house for $150,000 and it was worth $400,000 when they passed away, your basis is $400,000. Sell it for $410,000 and you owe capital gains tax on only $10,000.
How the Income Tax Works Today
Progressive Brackets
The federal income tax is progressive: higher portions of your income are taxed at higher rates. Landing in a higher bracket does not mean all of your income is taxed at that rate. Each bracket applies only to the dollars that fall within its range.
For 2026, the brackets for single filers and married couples filing jointly are:9Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
- 10%: Up to $12,400 (single) / $24,800 (joint)
- 12%: $12,401 to $50,400 (single) / $24,801 to $100,800 (joint)
- 22%: $50,401 to $105,700 (single) / $100,801 to $211,400 (joint)
- 24%: $105,701 to $201,775 (single) / $211,401 to $403,550 (joint)
- 32%: $201,776 to $256,225 (single) / $403,551 to $512,450 (joint)
- 35%: $256,226 to $640,600 (single) / $512,451 to $768,700 (joint)
- 37%: Over $640,600 (single) / Over $768,700 (joint)
Your marginal rate is the bracket your last dollar of income falls into. Your effective rate is what you actually pay as a percentage of total income, and it’s always lower than your marginal rate. A single filer with $100,000 in taxable income in 2026 has a marginal rate of 22% but an effective rate around 16.5%, because most of the income is taxed in lower brackets.
The Standard Deduction
Before your income hits those brackets, you subtract either the standard deduction or your itemized deductions, whichever is larger. Most taxpayers take the standard deduction because it requires no documentation. For 2026:9Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
- Single filers: $16,100
- Married filing jointly: $32,200
- Head of household: $24,150
Itemizing on Schedule A makes sense only when your deductible expenses (medical costs above 10% of adjusted gross income, state and local taxes up to $40,400 for 2026, mortgage interest on up to $750,000 of home loan debt, and charitable contributions) clearly exceed those amounts.
Reporting and Filing the Tax
The IRS does not simply take your word for what you earned. Employers must send you a W-2 by January 31, showing your total wages and the taxes withheld during the year.10Social Security Administration. Deadline Dates to File W-2s Banks and brokerages send 1099 forms reporting interest,11Internal Revenue Service. About Form 1099-INT, Interest Income dividends,12Internal Revenue Service. About Form 1099-DIV, Dividends and Distributions and other investment income. Freelance and contract clients that paid you $600 or more send a 1099-NEC. Everything flows onto Form 1040.13Internal Revenue Service. About Form 1040, U.S. Individual Income Tax Return
Federal income tax returns are due April 15 for most taxpayers. Taxpayers with an adjusted gross income of $89,000 or less can use IRS Free File to prepare and e-file at no cost.14Internal Revenue Service. 2026 Tax Filing Season Opens With Several Free Filing Options Available A paper return postmarked by the deadline counts as filed on time.15Internal Revenue Service. When to File
If you can’t finish by April 15, filing Form 4868 gives you an automatic six-month extension to October 15.16Internal Revenue Service. Get an Extension to File Your Tax Return The extension gives you more time to file, not more time to pay. If you owe money, you still need to estimate and pay that amount by April 15 to avoid interest and penalties.
Two separate penalties apply when you’re late, and they can stack. The failure-to-file penalty is 5% of your unpaid tax for each month (or partial month) the return is late, capped at 25%.17Internal Revenue Service. Failure to File Penalty The failure-to-pay penalty is a separate 0.5% per month on any tax balance that remains unpaid after the deadline, also capping at 25%.18Internal Revenue Service. Failure to Pay Penalty Filing late costs far more than paying late, so if you owe money and can’t pay by April 15, file anyway.
Keep your W-2s, 1099s, and receipts for any deductions for at least three years after filing. That is the standard window the IRS has to audit a return, though it extends to six years if the agency suspects you underreported income by more than 25%.