Federal income tax started in 1861 as a temporary Civil War measure, became permanent in 1913, and has been the main source of federal revenue ever since.

The first federal income tax appeared in August 1861, when Congress needed money to fund the Civil War. It was meant to expire when the war ended. The tax applied only to people earning over $800 per year — a threshold that excluded most workers at the time. After the war ended in 1865, Congress let the tax lapse.

A second income tax was introduced in 1894, but the Supreme Court struck it down in 1895, ruling that direct taxes like income tax required states to approve them through apportionment. This legal barrier stood for 18 years.

The 16th Amendment, ratified in February 1913, changed that. It gave Congress the power to collect income tax without apportioning it among the states. Three months later, in May 1913, the first permanent federal income tax went into effect. That same year, the Internal Revenue Service (originally called the Bureau of Internal Revenue) was established to collect it.

Key Takeaways

  • The first federal income tax ran from 1861 to 1872 to pay for the Civil War, then was repealed.
  • A second income tax in 1894 was struck down by the Supreme Court because the Constitution required apportionment of direct taxes.
  • The 16th Amendment, ratified in 1913, removed the apportionment requirement and made permanent federal income tax constitutional.
  • The modern income tax system began in May 1913 with the passage of the first permanent tax law and the creation of the IRS.

Why the Civil War income tax was temporary

Congress passed the first income tax in 1861 as an emergency revenue measure. The federal government needed money to equip and pay soldiers, and existing tariffs and excise taxes were not enough. The tax was explicitly designed to end when the war did.

The 1861 tax applied only to incomes above $800 per year. In 1863 dollars, that was roughly equivalent to $28,000 in current dollars — a threshold that meant only wealthy merchants, professionals, and landowners paid it. The vast majority of workers earned far less and owed nothing. After the Civil War ended in 1865, Congress repealed the tax in 1872, and it disappeared from federal law for over 20 years.

The 1894 tax and the Supreme Court barrier

In 1894, Congress tried again. The country faced a budget shortfall, and lawmakers introduced a new income tax on earnings above $4,000 per year. This version would have affected more people than the Civil War tax, though still only the upper and upper-middle classes.

The Supreme Court ruled against it in 1895, in the case Pollock v. Farmers' Loan & Trust Co. The Court decided that income tax was a "direct tax" under the Constitution, and direct taxes had to be apportioned among the states based on population. This made a national income tax impractical — a state with 5 percent of the population would have to pay 5 percent of the total tax, regardless of how much income was actually earned there. The ruling stood as law, and no federal income tax could be collected for 18 years.

The 16th Amendment and permanent income tax

The only way around the Supreme Court's decision was to amend the Constitution. In 1909, President Theodore Roosevelt and Congress proposed the 16th Amendment, which stated: "The Congress shall have power to collect taxes on incomes, from whatever source derived, without apportionment among the several States." This amendment removed the apportionment requirement and gave Congress a direct path to income tax.

The amendment was ratified on February 3, 1913, when Delaware became the 36th state to approve it — the number needed under the Constitution. On May 1, 1913, less than three months later, the first permanent federal income tax law took effect. The tax applied to incomes over $3,000 per year, with a top rate of 7 percent on the highest earners. The Internal Revenue Service was created the same year to administer it.

How the income tax expanded over time

The 1913 income tax was narrow by modern standards. Only about 3 percent of the population owed federal income tax because the threshold of $3,000 per year was still high relative to average wages. Most workers paid nothing.

That changed dramatically during World War I and World War II. As the wars required massive federal spending, Congress lowered the income threshold and raised tax rates. By the end of World War II, income tax had become a mass tax affecting tens of millions of workers. The payroll withholding system — where employers deduct taxes from each paycheck — was introduced in 1943 to handle the volume. Since then, federal income tax has remained the largest single source of federal revenue.

Frequently Asked Questions

Was there any federal income tax before 1861?

No. The Constitution originally prohibited direct taxes unless they were apportioned among the states, which made a national income tax impractical. The Civil War created the first exception, and it was always meant to be temporary.

Why did the Supreme Court strike down the 1894 income tax?

The Court ruled that income tax was a direct tax and therefore had to be apportioned among states based on population. This made it unworkable as a national tax. The 16th Amendment later overruled this decision by exempting income tax from the apportionment requirement.

Did everyone have to pay income tax starting in 1913?

No. The 1913 tax only applied to people earning over $3,000 per year, which excluded most workers. It was not until World War II that income tax became a mass tax affecting the majority of the workforce.

Is the IRS the same organization that was created in 1913?

The IRS traces its history to 1913, when it was called the Bureau of Internal Revenue. It was renamed the Internal Revenue Service in 1953. The organization has grown and changed, but it has been the federal agency responsible for collecting income tax since the permanent tax began.