The 16th Amendment Made Federal Income Tax Permanent in 1913

The United States began collecting federal income tax in 1913, after the 16th Amendment to the Constitution was ratified. Before that year, the government had tried income taxes twice — once during the Civil War and once in 1894 — but both were struck down by the Supreme Court or repealed. The 1913 tax was different because it had constitutional backing, which meant it could stay in place and grow into the system we have today.

That first income tax in 1913 affected very few people. It applied only to the highest earners — those making more than $3,000 per year, which was roughly equivalent to $100,000 in 1913 dollars. Most working Americans paid nothing. The tax rate started at 1 percent on the highest incomes and topped out at 7 percent. The government collected it to replace revenue that had come from tariffs on imported goods, which were being lowered for political reasons.

Key Takeaways

  • Federal income tax became permanent law in 1913 after the 16th Amendment was ratified, giving Congress the constitutional power to tax income without apportioning it among the states.
  • The first income tax in 1913 only affected wealthy earners making more than $3,000 per year; most working Americans were not subject to it.
  • The U.S. had attempted income taxes twice before — during the Civil War (1861–1872) and in 1894 — but both were repealed or ruled unconstitutional.
  • Income tax rates have changed dramatically over the past century, ranging from as low as 1 percent to as high as 94 percent on top earners at different points in history.

Why Earlier Income Taxes Failed

The first U.S. income tax was temporary, created to pay for the Civil War. It ran from 1861 to 1872 and taxed incomes above $600. When the war ended, the government no longer needed the revenue, so Congress let the tax expire. There was no constitutional question at that time — Congress straightforward chose to stop collecting it.

The second attempt came in 1894, when Congress passed an income tax without a constitutional amendment. The Supreme Court ruled in 1895 that this tax was unconstitutional because the Constitution required direct taxes (like income tax) to be divided among the states based on population. This ruling made it impossible for the federal government to collect income tax the way it wanted to. The only way around it was to change the Constitution itself.

The 16th Amendment Changed Everything

In 1909, President William Howard Taft proposed a constitutional amendment that would allow Congress to tax income without apportioning it among the states. The amendment was ratified on February 3, 1913, just before Taft left office. It was remarkably quick for a constitutional amendment — only four years from proposal to ratification.

The 16th Amendment is short and direct: "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 barrier that had blocked the 1894 tax. Within months, Congress passed the first permanent income tax law, and it went into effect that same year.

How Income Tax Expanded Over the Decades

The income tax that started in 1913 was narrow and affected only the wealthy. But as the country entered World War I in 1917, the government needed far more revenue. Congress raised tax rates and lowered the income threshold so that more people had to pay. By the 1920s, income tax had become a major source of federal revenue.

During the Great Depression and World War II, income tax expanded even further. Tax rates climbed to historic highs — the top rate reached 94 percent during World War II on the highest earners. After the war, rates came down but remained high by modern standards. The tax system also became more complex, with deductions and credits added over time to encourage certain behaviors, like homeownership and charitable giving.

The structure that exists today — with federal income tax withheld from paychecks, filed annually, and calculated using tax brackets — took shape gradually between 1913 and the 1940s. Payroll withholding, where employers deduct taxes before paying workers, was introduced in 1943 as a temporary wartime measure but became permanent.

What the 1913 Tax Looked Like in Practice

The first income tax form in 1913 was much simpler than today's forms. It was a single page for most people, with basic questions about income and deductions. Only about 3 percent of the population had to file — mostly business owners, investors, and salaried professionals earning above the threshold.

Taxpayers had to list their income by source: wages, dividends, interest, rent, and business profits. They could deduct certain expenses, though the rules were narrower than they are now. There was no standard deduction in the modern sense, but there were some personal exemptions. The tax was due on March 1 each year, and the government collected it through local collectors rather than a centralized agency like the IRS (which did not exist yet).

How the IRS Came Into Being

The Internal Revenue Service did not exist when income tax started in 1913. Tax collection was handled by the Bureau of Internal Revenue, which had existed since 1862 to collect excise taxes and tariffs. As income tax grew in importance, the bureau expanded and eventually became the IRS in 1953.

In the early years, the income tax system was much smaller and less bureaucratic than it is now. Audits were rare, and most people who filed paid what they owed without much scrutiny. As the tax base widened and rates climbed, the government needed more staff and more sophisticated systems to track and collect taxes. This growth accelerated during World War II, when millions of new taxpayers entered the system.

Frequently Asked Questions

Did Americans pay income tax before 1913?

Yes, but only temporarily. The U.S. collected income tax from 1861 to 1872 to pay for the Civil War, and Congress tried again in 1894. Both taxes were either repealed or ruled unconstitutional. The 1913 tax was the first permanent federal income tax.

Why did it take a constitutional amendment to make income tax legal?

The original Constitution required direct taxes to be divided among states based on population. An income tax could not work that way, so the Supreme Court ruled the 1894 income tax unconstitutional. The 16th Amendment removed that requirement and gave Congress the power to tax income directly.

How much did the richest Americans pay in 1913?

The top tax rate in 1913 was 7 percent, applied to incomes above $500,000. This is much lower than rates in later decades — the top rate reached 94 percent during World War II. Rates have fluctuated significantly depending on the era and the government's revenue needs.

When did most Americans start paying income tax?

Income tax remained a tax on the wealthy until World War II. During the war, the government lowered the threshold and raised rates to fund military spending. By 1945, millions of ordinary workers were paying income tax for the first time, and most have continued to do so since then.

Is income tax the same in every state?

Federal income tax is the same nationwide, but many states also collect their own income tax at different rates. Some states have no income tax at all. The federal tax is what goes to the IRS, while state taxes go to your state government.