The federal income tax became permanent in 1913 with the 16th Amendment

The federal income tax as a permanent tax on individual earnings started in 1913, after Congress ratified the 16th Amendment to the Constitution. Before that year, the federal government had tried income taxes twice — once during the Civil War (1861–1872) and again briefly in 1894 — but both were struck down by courts or allowed to expire. The 1913 tax was different: it was constitutional, it was meant to stay, and it has remained the primary way the federal government funds itself ever since.

The original 1913 tax rate was low. It applied only to people earning more than $3,000 per year, which was roughly equivalent to $100,000 in current dollars. Most working people paid nothing. The top rate was 7 percent. Over the next decade, especially during World War I and World War II, rates climbed steeply to fund military spending, and the tax expanded to cover millions of ordinary workers. By the 1940s, the income tax had become what it is today: a mass tax that reaches most people who work.

Key Takeaways

  • The federal income tax became permanent in 1913 after the 16th Amendment was ratified, allowing Congress to tax income without apportioning it among the states.
  • The original 1913 tax only affected people earning above $3,000 per year and had a top rate of 7 percent, so most workers paid nothing.
  • Tax rates rose sharply during World War I and World War II to pay for military costs, and the tax eventually expanded to cover millions of ordinary workers.
  • The structure of the income tax — withholding from paychecks, filing important date, and tax brackets — took its modern form during the 1940s and has remained largely the same since.

Why the Constitution had to change first

Before 1913, the Constitution did not clearly allow Congress to tax income. The original document gave Congress power to collect "direct taxes," but it required those taxes to be divided among the states based on population. An income tax did not fit that rule — it would fall on individuals, not states, and it would be unequal by design (richer people would pay more). So when Congress tried an income tax in 1894, the Supreme Court struck it down in Pollock v. Farmers' Loan & Trust Co., ruling that an income tax was a direct tax and therefore unconstitutional without apportionment.

Congress and the states responded by passing the 16th Amendment in 1913. It said straightforward: "The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States." That one sentence removed the apportionment requirement and made the income tax constitutional. It was ratified by the states and became law on February 3, 1913.

The first income tax was small and affected few people

The tax that took effect in 1913 was narrow by modern standards. It applied only to people whose income exceeded $3,000 per year — a threshold that excluded roughly 98 percent of the population. For those who did owe tax, the rates were modest: 1 percent on income above $3,000, rising to 7 percent on income above $500,000. The tax was meant to fall on the wealthy, and it did.

The 1913 law also allowed deductions for business expenses, interest, taxes, and losses, much as the tax code does today. People filed returns by hand, and the Internal Revenue Service (then called the Bureau of Internal Revenue) processed them manually. The number of returns filed in the first year was roughly 357,000 — a tiny fraction of the workforce.

World War I and World War II transformed the tax into a mass tax

The income tax remained a tax on the wealthy through the 1920s and early 1930s. Then came World War I, and Congress needed money. Tax rates climbed. By 1918, the top rate had reached 77 percent. After the war, rates fell again, but they never returned to 1913 levels.

The real transformation came during World War II. To pay for military spending, Congress lowered the income threshold to $500 per year and raised rates again. The top rate hit 94 percent in 1944 and 1945. More importantly, Congress introduced withholding — the system where employers deduct tax from each paycheck and send it to the government. Before withholding, people paid their tax bill once a year. Withholding made the tax continuous and automatic, and it made it possible to tax millions of people who had never paid income tax before. By the end of World War II, roughly 40 million people filed returns, compared to fewer than 4 million in 1939.

The tax code settled into its modern form after 1945

After World War II ended, Congress did not lower tax rates back to pre-war levels. Instead, the income tax became a permanent, broad-based tax on most working Americans. Rates fell from their wartime peaks but stayed high by historical standards. The top rate was 91 percent in the 1950s and 1960s, then fell to 70 percent in 1970, then to 50 percent in 1981, and eventually to 37 percent as of 2024.

The structure of the tax — withholding, annual filing, tax brackets, deductions, and credits — took its modern shape during the 1940s and has remained largely the same since. The IRS expanded, the tax code grew longer and more complex, and Congress added new provisions (like the earned income tax credit in 1975), but the basic machinery has not changed. A worker in 2024 files a return much the way a worker in 1945 did: employers withhold tax from paychecks, the worker files a form by a important date, and the IRS processes the return.

State income taxes came later, and not all states have them

The federal income tax was not the first income tax in America. Wisconsin passed a state income tax in 1911, two years before the federal tax. Other states followed, especially after the 16th Amendment made income taxes clearly constitutional. Today, 41 states and the District of Columbia have income taxes. Nine states — Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire — do not tax income (though New Hampshire taxes investment income). The rates and rules vary widely by state.

State income taxes are separate from the federal tax. You may owe both, or only federal, depending on where you live. The federal government does not collect state income taxes; each state runs its own system. Some states allow you to deduct federal taxes paid when calculating state tax, and vice versa, but the two systems are independent.

How the income tax has changed since 1913

The income tax has been rewritten many times since 1913. Major overhauls occurred in 1954, 1986, and 2017. Each time, Congress changed rates, added or removed deductions, adjusted brackets, or shifted the tax burden between income groups. The 1986 overhaul, for example, lowered the top rate from 50 percent to 28 percent but eliminated many deductions. The 2017 overhaul (the Tax Cuts and Jobs Act) lowered the corporate rate and individual rates but also changed deductions and credits.

Despite these changes, the basic structure has held: income is taxed at progressive rates (higher income is taxed at higher rates), people file annual returns, employers withhold tax from paychecks, and the IRS collects and enforces the tax. The tax code itself has grown from a few pages in 1913 to over 70,000 pages today, but the fundamental idea — that the federal government funds itself partly through a tax on individual income — has remained constant for over 110 years.

Frequently Asked Questions

Did people have to pay income tax before 1913?

The federal government collected an income tax during the Civil War (1861–1872) and tried again in 1894, but both were temporary or struck down by courts. The 1913 tax was the first permanent federal income tax. Before 1913, the federal government funded itself mainly through tariffs on imports and excise taxes on goods like alcohol and tobacco.

Why did the government need the 16th Amendment to create an income tax?

The original Constitution required "direct taxes" to be apportioned among states based on population. An income tax did not fit that rule because it taxed individuals, not states, and it was unequal by design. The Supreme Court struck down the 1894 income tax for this reason. The 16th Amendment removed the apportionment requirement and made income taxes constitutional.

What was the original income tax rate in 1913?

The original rate was 1 percent on income above $3,000 per year, rising to 7 percent on income above $500,000. The $3,000 threshold meant that roughly 98 percent of workers paid no federal income tax. Only the wealthy owed anything.

When did most workers start paying federal income tax?

During World War II, Congress lowered the income threshold and introduced withholding from paychecks. By 1945, roughly 40 million people filed returns, compared to fewer than 4 million in 1939. The income tax shifted from a tax on the wealthy to a mass tax on ordinary workers during the 1940s.

Do all states have income taxes?

No. Nine states — Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire — do not tax income. New Hampshire taxes investment income but not wages. The other 41 states and the District of Columbia have income taxes with varying rates and rules.