President Woodrow Wilson signed the first permanent federal income tax into law in 1913

The 16th Amendment, ratified in February 1913, gave Congress the power to collect income tax without apportioning it among the states. Three months later, President Wilson signed the Revenue Act of 1913, which created the first permanent federal income tax system. The tax started at 1 percent on incomes over $3,000—a threshold that excluded most working Americans at the time, since the average annual wage was around $600.

Before 1913, the federal government had tried income taxes twice. The first was during the Civil War (1861–1872) as a temporary measure to fund the war effort. The second came in 1894, but the Supreme Court struck it down in 1895, ruling that a direct income tax required a constitutional amendment. That legal barrier stood for 18 years until the 16th Amendment removed it.

Key Takeaways

  • The 16th Amendment, ratified in 1913, gave Congress the constitutional power to tax income without apportioning it among states.
  • President Woodrow Wilson signed the Revenue Act of 1913, which established the first permanent federal income tax system.
  • The original 1913 income tax applied only to high earners—those making over $3,000 annually—and affected fewer than 3 percent of the population.
  • An 1894 income tax attempt was struck down by the Supreme Court, which is why the 16th Amendment was necessary to make income tax constitutional.

Why the Supreme Court blocked income tax in 1894

In 1894, Congress passed an income tax law during an economic depression, hoping to raise revenue without raising tariffs. The tax was 2 percent on incomes over $4,000. However, the Supreme Court ruled in Pollock v. Farmers' Loan & Trust Co. that a direct income tax on property (which included income) was unconstitutional unless apportioned among the states based on population.

This apportionment requirement made income tax impractical. A state with a small population would owe the same total tax as a state with millions of residents, which meant either the tax would be tiny or some states would pay an absurd share. The Court's decision blocked income tax for 18 years and forced the government to rely on tariffs and excise taxes instead.

How the 16th Amendment changed the rules

The 16th Amendment stated straightforward: "The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States." This single sentence overturned the Supreme Court's apportionment rule and gave Congress a direct path to income tax.

The amendment passed Congress in 1909 and went to the states for ratification. It took four years, but by February 1913, enough states had ratified it to make it part of the Constitution. Three months later, Wilson's administration drafted and Congress passed the Revenue Act of 1913, putting the new power into effect when ready.

What the 1913 income tax actually taxed

The Revenue Act of 1913 imposed a 1 percent tax on net personal income over $3,000 for single filers and $4,000 for married couples. It also included a surtax—an additional tax on higher incomes—that ranged from 1 to 6 percent on incomes above $20,000. The law exempted wages, salaries, and interest on government bonds, though those exemptions were narrowed in later years.

Because $3,000 was roughly five times the average worker's annual wage, the 1913 tax hit only the wealthy. Historians estimate it affected fewer than 3 percent of the population. The tax was designed to replace tariff revenue, which had been the federal government's main income source since the Civil War.

How income tax expanded after 1913

The income tax remained a tax on the rich through the 1920s, but World War I changed that. To fund the war effort, Congress lowered the income threshold and raised the rates. By 1918, the top rate reached 77 percent. After the war, rates fell but never returned to 1913 levels.

The Great Depression and World War II pushed income tax further down the income ladder. By the 1940s, income tax had become a mass tax affecting millions of middle-class Americans. Employers began withholding taxes from paychecks, which made the system permanent and routine. What started as a tax on the wealthy in 1913 became the federal government's largest source of revenue.

Why income tax took so long to establish

The Constitution as originally written did not clearly authorize Congress to tax income. The Framers had given Congress power to tax "direct taxes" and "indirect taxes" (like tariffs), but they did not define which category income fell into. For over a century, this ambiguity did not matter because the government did not try to tax income permanently.

When Congress tried in 1894, the Supreme Court interpreted the Constitution strictly and said income tax was a direct tax that had to be apportioned. Rather than fight the Court, Congress chose to amend the Constitution instead. This took time—the amendment process requires approval by two-thirds of both houses and ratification by three-fourths of the states—but it settled the question permanently.

Frequently Asked Questions

Did America have any income tax before 1913?

Yes, but only temporarily. The Civil War income tax ran from 1861 to 1872 and was explicitly temporary. Congress also passed an income tax in 1894, but the Supreme Court struck it down in 1895. The 1913 income tax under President Wilson was the first permanent federal income tax.

Why did the 1894 income tax fail when the 1913 one succeeded?

The Supreme Court ruled the 1894 tax unconstitutional because it was a direct tax that was not apportioned among the states. The 16th Amendment, ratified in 1913, removed that requirement and gave Congress explicit power to tax income without apportionment. This legal change made the 1913 tax constitutional.

How much did people actually pay in the 1913 income tax?

The 1913 tax started at 1 percent on incomes over $3,000, with a surtax of 1 to 6 percent on higher incomes. Because $3,000 was about five times the average wage, only the wealthy paid it. A person earning $10,000 would have owed roughly $20 in federal income tax.

When did income tax start affecting regular workers, not just the rich?

Income tax remained a tax on the wealthy through the 1920s. World War I and the Great Depression pushed Congress to lower the income threshold and raise rates. By the 1940s, income tax had become a mass tax affecting millions of middle-class Americans.