The United States introduced its first federal income tax in 1861, during the Civil War, but that early tax was temporary and was repealed in 1872. The permanent federal income tax that Americans pay today began in 1913, after the Sixteenth Amendment was ratified and Congress passed the Revenue Act of 1913.
The First Income Tax in 1861
Before the Civil War, the federal government funded itself almost entirely through tariffs and excise taxes on goods like whiskey and tobacco. The war made that impossible. Congress needed revenue on a scale tariffs could not produce, so it passed the Revenue Act of 1861, which imposed a flat 3 percent tax on annual incomes over $800.1United States Senate. The Revenue Act of 1861
That 1861 tax was never actually collected. Treasury Secretary Salmon Chase delayed implementation while waiting for Congress to revise the law, and no collection machinery was ever set up.2U.S. Government Publishing Office. Financing the Civil War The Revenue Act of 1862 replaced it with a working, progressive tax: 3 percent on incomes between $600 and $10,000, and 5 percent above $10,000.3Internal Revenue Service. Historical Highlights of the IRS The same 1862 law created the Office of the Commissioner of Internal Revenue, the direct ancestor of today’s IRS.4FRASER – St. Louis Fed. Revenue Act of 1862
After the war, support for the income tax collapsed. Congress cut the rate in 1867 and repealed the tax entirely in 1872. By then, roughly 90 percent of federal revenue was coming from taxes on liquor, beer, wine, and tobacco.3Internal Revenue Service. Historical Highlights of the IRS The country went back to funding itself through consumption taxes for the next four decades.
Why the 1894 Attempt Was Struck Down
Congress tried again in 1894. The Wilson-Gorman Tariff Act imposed a 2 percent tax on personal and corporate incomes above $4,000, but it never took effect. In Pollock v. Farmers’ Loan & Trust Co., the Supreme Court ruled the tax unconstitutional.5Justia. Pollock v. Farmers Loan and Trust Co., 157 U.S. 429 (1895) The justices held that taxes on income from property, such as rent and investment interest, counted as “direct taxes” under Article I, which required direct taxes to be apportioned among the states by population. A flat national rate did not do that.6Congress.gov. ArtI.S9.C4.1 Overview of Direct Taxes After Pollock, a federal income tax was effectively off the table until the Constitution itself was changed.
The Sixteenth Amendment and the Permanent Income Tax in 1913
Congress proposed the Sixteenth Amendment on July 2, 1909. It was ratified on February 3, 1913.7National Archives. 16th Amendment to the U.S. Constitution – Federal Income Tax The text is one 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.”8Congress.gov. U.S. Constitution – Sixteenth Amendment That single sentence removed the apportionment barrier Pollock had raised and gave Congress permanent authority to tax income directly.
Congress acted within months. The Revenue Act of 1913, also called the Underwood-Simmons Act, set a base rate of 1 percent on net income above $3,000 for individuals and $4,000 for married couples, with surtaxes climbing to 7 percent on income over $500,000. The exemptions were high enough that less than 1 percent of Americans owed anything.7National Archives. 16th Amendment to the U.S. Constitution – Federal Income Tax9Internal Revenue Service. IRS History Timeline3Internal Revenue Service. Historical Highlights of the IRS
How the Tax Grew Into What Americans Pay Today
The 1913 tax reached almost no one. The system that reaches nearly every worker came later, and it grew in surges tied to war and to one key change in collection.
Rates climbed sharply during World War I, from 15 percent at the top in 1916 to 77 percent by 1918. They fell back to 25 percent in the 1920s, rose again to 63 percent during the Great Depression in 1932, and reached an all-time peak of 94 percent on taxable income above $200,000 in 1944, during World War II. The top rate stayed above 90 percent through 1963 and above 70 percent until 1981.
For the first three decades, taxpayers calculated what they owed and paid once a year. The Current Tax Payment Act of 1943 changed that by requiring employers to withhold income tax from every paycheck and remit it to the government. Withholding is what turned the income tax from a narrow levy on high earners into a fixture of ordinary working life. Rates have moved up and down since, but the collection method that reaches most Americans dates from 1943, not 1913.