The federal income tax began in 1861 as a temporary war measure

The United States first imposed a federal income tax in 1861 to fund the Civil War. Congress passed it as a temporary measure, expecting it to end when the war did. The tax applied only to people earning more than $800 per year — a threshold that excluded most working people at the time. It was repealed in 1872, a few years after the war ended.

For the next 24 years, the federal government had no income tax. It relied instead on tariffs (taxes on imported goods) and excise taxes on specific items like alcohol and tobacco. This changed in 1894, when Congress tried to impose another income tax during an economic depression. The Supreme Court struck it down in 1895, ruling that the Constitution did not allow a direct tax on income without apportioning it among the states — a requirement that made such a tax impractical.

Key Takeaways

  • The first federal income tax ran from 1861 to 1872 and was created to pay for Civil War expenses.
  • An 1894 income tax was ruled unconstitutional by the Supreme Court in 1895, blocking federal income taxation for another 16 years.
  • The 16th Amendment, ratified in 1913, gave Congress the power to tax income directly without apportioning it among states.
  • The modern federal income tax system has existed since 1913 and has been the primary source of federal revenue ever since.

The 16th Amendment made permanent income tax possible

To overturn the Supreme Court's 1895 decision, Congress proposed the 16th Amendment in 1909. It stated simply: "The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States." The amendment was ratified on February 3, 1913.

That same year, the federal income tax returned — this time as a permanent part of the tax system. The 1913 tax was modest by later standards. It applied only to people earning more than $3,000 per year (roughly $100,000 in 2024 dollars), and the top rate was just 7 percent. Most Americans paid nothing. The tax was designed to fall primarily on the wealthy.

Income tax rates and coverage expanded over time

The income tax remained narrow until World War I. As the war effort ramped up after 1917, Congress raised tax rates and lowered the income threshold to bring in more revenue. By 1918, the top rate had climbed to 77 percent, and the tax reached into the middle class for the first time.

After World War I ended, rates fell during the 1920s but rose again during the Great Depression and World War II. By the 1940s, the income tax had become a mass tax — most working Americans now owed federal income tax. This shift happened because Congress needed enormous sums to fight World War II and because inflation pushed more people into the tax system. The withholding system, introduced in 1943, made it easier for employers to collect the tax directly from paychecks rather than waiting for people to pay in a lump sum at tax time.

Why the income tax replaced other revenue sources

Before 1913, the federal government relied heavily on tariffs — taxes on goods imported from other countries. Tariffs were politically popular because they protected American manufacturers from foreign competition. However, tariffs are less reliable than income taxes because they depend on trade volumes, which fluctuate with economic conditions.

Income tax proved more stable and could raise much larger sums. As the 20th century progressed and the federal government took on more responsibilities — building infrastructure, funding Social Security, maintaining a military — the income tax became indispensable. Today, individual income taxes account for roughly half of all federal revenue, making them the largest single source of funding for the federal government.

State income taxes came later and developed separately

While the federal income tax began in 1861, most states did not impose their own income taxes until much later. Wisconsin was the first state to adopt an income tax, in 1911. Other states followed gradually, especially after World War II. Today, 41 states and the District of Columbia have income taxes; nine states have no income tax at all.

State income taxes developed on their own timeline and are separate from the federal system. A person's federal income tax liability has no direct effect on what they owe to their state, though some states use federal income as a starting point for calculating state tax. Each state sets its own rates, brackets, and rules about what counts as taxable income.

How the income tax system works today

The modern federal income tax is a progressive tax, meaning the rate increases as income rises. The tax code divides income into brackets, and you pay a different rate on income within each bracket. For example, in 2024, single filers pay 10 percent on income up to $11,600, then 12 percent on income from $11,601 to $47,150, and so on up to 37 percent on income above $578,100.

Most people pay income tax through withholding — their employer deducts a portion of each paycheck and sends it to the IRS. Self-employed people and those with income not subject to withholding make quarterly estimated tax payments. At the end of the year, people file a tax return to reconcile what they paid with what they actually owe. If they paid too much, they receive a refund; if they paid too little, they owe the difference.

Frequently Asked Questions

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

The Supreme Court ruled in 1895 that an income tax was a "direct tax" under the Constitution and therefore had to be apportioned among states based on population. This requirement made a practical income tax impossible. The 16th Amendment, ratified in 1913, removed this obstacle by giving Congress explicit power to tax income without apportionment.

Was the income tax always progressive, or did it start as a flat tax?

The income tax has been progressive since 1861. Even the first Civil War income tax used different rates for different income levels. The structure has changed many times — sometimes with more brackets and steeper progressivity, sometimes with fewer brackets and gentler slopes — but the basic principle of higher rates on higher incomes has remained constant.

Did everyone have to pay income tax when it started in 1913?

No. The 1913 income tax applied only to people earning more than $3,000 per year, which excluded the vast majority of Americans. It was designed as a tax on the wealthy. It was not until World War II that income tax became a mass tax affecting most working people.

How much of federal revenue comes from income tax today?

Individual income taxes account for roughly 50 percent of all federal revenue. Corporate income taxes add another 10 percent or so. The remaining federal revenue comes from payroll taxes (Social Security and Medicare), excise taxes, tariffs, and other sources. Payroll taxes are the second-largest source after individual income tax.