The federal income tax began in 1913 with the 16th Amendment

The federal income tax as we know it started in 1913, when the 16th Amendment to the Constitution was ratified. That amendment gave Congress the power to collect income tax without apportioning it among the states based on population. Before that year, the federal government had tried income taxes twice — once during the Civil War and once in 1894 — but both were struck down by courts or repealed because they were seen as unconstitutional.

The 1913 tax was modest at first. It applied only to the highest earners — people making more than $3,000 a year, which was roughly equivalent to $100,000 in 1913 dollars. Most working Americans paid nothing. The tax rate started at 1 percent on income above that threshold and topped out at 7 percent for the very wealthy. Over the following decades, especially during World War II, the tax expanded to cover millions of workers and rates climbed much higher.

Key Takeaways

  • The 16th Amendment, ratified in 1913, gave Congress the constitutional power to tax income directly without apportioning it among states.
  • The first federal income tax in 1913 affected only the wealthiest Americans, with rates starting at 1 percent and topping out at 7 percent.
  • Earlier attempts at federal income tax during the Civil War and in 1894 were either repealed or struck down by courts.
  • During World War II, the income tax expanded dramatically to fund the war effort and eventually became the primary source of federal revenue.

Why the Constitution had to be amended first

Before 1913, the Constitution did not clearly allow Congress to tax income. The Supreme Court had ruled in 1895 that an income tax was a "direct tax" and therefore had to be apportioned among states based on their population — a rule that made a national income tax impractical. Congress could not straightforward pass a law; the Constitution itself had to change.

The 16th Amendment was proposed in 1909 and ratified by enough states by February 1913. It contained just one sentence: "The Congress shall have power to collect taxes on incomes, from whatever source derived, without apportionment among the several States." That single sentence removed the constitutional barrier and allowed Congress to write the tax code we have today.

The Civil War income tax came first but did not last

The federal government actually collected income tax before 1913. During the Civil War, Congress passed an income tax in 1861 to pay for the war. It was temporary — meant to expire when the war ended — and it did. The tax was repealed in 1872, a few years after the war closed.

That wartime tax was never challenged in court, so nobody knew whether the Constitution would allow it in peacetime. In 1894, Congress tried again, passing a new income tax during an economic downturn. This time the Supreme Court stepped in. In 1895, the Court ruled that the income tax was unconstitutional without apportionment, effectively killing the law. That ruling stood until the 16th Amendment overturned it.

The 1913 tax was small but grew quickly

The first income tax under the 16th Amendment was narrow in scope. It taxed only income above $3,000 for single filers and $4,000 for married couples filing jointly. In 1913, the median income for a working American was around $600 to $800 a year, so the tax touched only the top 3 percent of earners. The rate structure was also gentle: 1 percent on income between $3,000 and $20,000, rising to 7 percent on income over $500,000.

The tax remained small through the 1920s and 1930s. Then World War II changed everything. To fund the war, Congress lowered the income threshold, raised the rates, and created the system of employer withholding that still exists today. By the end of the war, the income tax had become a mass tax affecting tens of millions of workers, and it has remained the largest source of federal revenue ever since.

How the tax code has changed since 1913

The income tax has been rewritten many times since 1913. Tax rates have swung wildly — from 7 percent in 1913 to 94 percent during World War II, back down to 28 percent in the late 1980s, and to 37 percent today. The number of pages in the tax code has grown from a few dozen to tens of thousands, with countless deductions, credits, and special rules added and removed over the decades.

The structure has also changed. In 1913, the tax was calculated and paid once a year. During World War II, the government introduced withholding — the system where your employer deducts tax from each paycheck. That change made it easier for the government to collect from millions of workers and harder for workers to avoid paying. The standard deduction, the earned income tax credit, and many other features we know today were added much later, in the 1940s through 1970s.

Why the income tax replaced other federal taxes

Before the income tax, the federal government relied mainly on tariffs — taxes on imported goods — to raise money. Tariffs were unpopular because they raised prices for consumers, but they were also politically easier to pass because they affected only people who bought imported goods, not everyone.

The income tax was supposed to be fairer because it was based on ability to pay. Over time, it became so productive that tariffs became less important. Today, the income tax brings in roughly half of all federal revenue, with payroll taxes (for Social Security and Medicare) making up most of the rest. Tariffs still exist but are a tiny fraction of federal income.

Frequently Asked Questions

Did everyone have to pay income tax in 1913?

No. The 1913 tax applied only to income above $3,000 to $4,000 per year, which meant only the wealthiest 3 percent of Americans owed anything. Most workers paid no federal income tax at all. That changed during World War II, when the threshold was lowered and millions of ordinary workers became taxpayers.

What was the highest income tax rate ever?

During World War II and for several years after, the top marginal rate reached 94 percent on the highest incomes. Rates have varied widely throughout history — they were 7 percent in 1913, climbed to 77 percent by 1918, fell to 24 percent in the 1920s, and have fluctuated between 28 and 39.6 percent since the 1980s.

Why did the government need the 16th Amendment instead of just passing a law?

The Supreme Court had ruled in 1895 that income tax was unconstitutional without apportionment among states. A law alone could not override that ruling. Only a constitutional amendment could change the Constitution itself and give Congress the power to tax income directly.

Could the income tax be repealed?

Technically yes, but it would require either a new constitutional amendment or a decision by Congress to eliminate it — neither is likely. The income tax is now so central to how the federal government funds itself that removing it would require finding trillions of dollars in replacement revenue.