The United States adopted income tax in 1913 with the 16th Amendment

The federal income tax as we know it began 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 1913, the federal government relied mainly on tariffs and excise taxes. Income tax had been tried once before — during the Civil War — but it was temporary and ended in 1872.

The 1913 income tax started small. Only the wealthiest Americans paid it. The first tax rate was 1 percent on incomes over $3,000, which was roughly equivalent to $100,000 in 2024 dollars. Most working people did not owe federal income tax at all. That changed gradually over the 20th century as rates rose and the tax base expanded to include middle-income earners.

Key Takeaways

  • Income tax became permanent federal law in 1913 after the 16th Amendment was ratified, allowing Congress to tax income directly.
  • The first income tax in 1913 applied only to the wealthy, with a 1 percent rate on incomes above $3,000.
  • Before 1913, the federal government funded itself through tariffs and excise taxes, not income tax.
  • A temporary income tax during the Civil War (1861–1872) showed the government could collect income tax, but it was repealed after the war ended.
  • Income tax expanded to middle-income earners during World War I and World War II as the government needed more revenue.

Why the 16th Amendment was necessary

In 1895, the Supreme Court ruled in Pollock v. Farmers' Loan & Trust Co. that the federal government could not tax income from property without apportioning that tax among the states. This decision blocked an income tax that Congress had passed in 1894. The ruling meant that any income tax would have to be divided up by state population, which made the tax impractical to collect.

The 16th Amendment overturned that ruling. It 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 language removed the apportionment requirement and gave Congress a direct path to income tax. The amendment was ratified on February 3, 1913, and Congress passed the first permanent income tax law that same year.

The Civil War income tax came first but did not last

Income tax was not new to America in 1913. During the Civil War, Congress needed money to pay for the war effort and passed an income tax in 1861. This tax applied to incomes over $800 and used a progressive structure — higher earners paid a higher percentage. The tax was meant to be temporary, and it was repealed in 1872, a few years after the war ended.

The Civil War tax proved that the federal government could collect income tax and that people would pay it. However, it also showed that income tax was politically unpopular during peacetime. After 1872, the government returned to tariffs and excise taxes as its main sources of revenue. The question of whether Congress had the constitutional power to tax income remained unsettled until the 16th Amendment resolved it.

How income tax expanded from the wealthy to the middle class

In 1913, income tax was a tax on the rich. The threshold of $3,000 meant that only about 3 percent of the population owed federal income tax. Most workers earned far less and paid nothing. The tax was designed to fund the federal government without burdening ordinary people.

That changed during World War I. As military spending increased, Congress raised tax rates and lowered the income threshold to bring in more revenue. By the end of World War I, income tax had become a mass tax affecting millions of middle-income earners. World War II accelerated this trend further. By 1945, income tax was the largest source of federal revenue, and it applied to most working Americans. The shift from a tax on the wealthy to a tax on the middle class happened gradually over three decades, driven by the government's need for money during wartime.

The role of tariffs before income tax

Before 1913, tariffs — taxes on imported goods — were the federal government's largest source of revenue. Tariffs protected American manufacturers from foreign competition and raised money at the same time. The government also collected excise taxes on specific goods like alcohol and tobacco. Together, these taxes funded the federal government without directly taxing income.

Tariffs were politically contentious. Southern states and farmers opposed high tariffs because they made imported goods more expensive. Northern manufacturers supported them because they protected their businesses. The debate over tariff rates was a major political issue throughout the 1800s. Income tax offered a way to raise federal revenue without relying so heavily on tariffs, though tariffs remained important even after income tax began.

How the income tax system developed after 1913

The 1913 income tax law created the basic structure that still exists: a progressive tax where higher earners pay a higher percentage, a standard deduction below which people owe nothing, and deductions for certain expenses. The law also required employers to withhold tax from workers' paychecks, though this requirement was not enforced consistently until World War II.

Tax rates changed frequently in response to wars, recessions, and political shifts. During the 1950s, the top tax rate reached 91 percent on the highest incomes. In the 1980s, President Ronald Reagan pushed through major tax cuts that lowered the top rate to 28 percent. Rates have fluctuated since then based on which party controlled Congress and the presidency. The basic framework, however — a federal income tax on individuals and corporations — has remained in place since 1913.

State income taxes came later than federal income tax

Most states did not have income taxes in 1913. Wisconsin was the first state to pass an income tax, in 1911, two years before the federal government. After the federal income tax began, other states gradually adopted their own income taxes. 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 some of these states tax other sources like capital gains or dividends.

State income taxes are separate from federal income tax. You may owe both. The amount you owe to each depends on where you live and work, your income level, and the tax laws of that state. Some states allow you to deduct federal income tax from your state income tax, while others do not.

Frequently Asked Questions

Did income tax exist before 1913?

Yes. The federal government collected income tax during the Civil War (1861–1872) to pay for military expenses. That tax was temporary and was repealed after the war. Income tax did not return until 1913, when the 16th Amendment made it permanent.

Why did the Supreme Court block income tax in 1895?

The Supreme Court ruled that income from property had to be apportioned among the states based on population, which made income tax impractical. The 16th Amendment overturned this ruling by allowing Congress to tax income without apportionment.

How much did the first income tax cost in 1913?

The first federal income tax in 1913 was 1 percent on incomes over $3,000. Only the wealthiest Americans paid it. Most workers earned less than $3,000 and owed no federal income tax at all.

When did income tax become a tax on the middle class?

Income tax gradually expanded to the middle class during World War I and World War II as the government lowered the income threshold and raised tax rates to pay for military spending. By 1945, most working Americans paid federal income tax.

Do all states have income taxes?

No. Nine states do not tax income: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire. The other 41 states and the District of Columbia have income taxes. State income tax is separate from federal income tax.