The federal income tax began in 1913

The 16th Amendment, ratified in February 1913, gave Congress the power to collect income tax without apportioning it among the states. The first federal income tax under this amendment took effect that same year. Before 1913, the federal government had tried income taxes twice — once during the Civil War (1861–1872) and again briefly in 1894 — but the Supreme Court struck down the 1894 version as unconstitutional.

The 1913 tax was modest by modern standards. It applied only to people earning above a certain threshold — roughly $3,000 per year for individuals and $4,000 for married couples filing jointly. At that time, the average worker earned about $600 per year, so the tax hit only the wealthy. The top rate was 7 percent.

Income tax remained a tax on the rich until World War II. During the war, the government needed far more revenue and lowered the income threshold dramatically. By 1945, millions of ordinary workers were filing returns for the first time. The tax withholding system — where your employer deducts tax from each paycheck — was introduced in 1943 to make collection faster and easier.

Key Takeaways

  • Federal income tax started in 1913 after the 16th Amendment was ratified, allowing Congress to tax income without apportioning it among states.
  • The original 1913 tax applied only to high earners; the top rate was 7 percent and most workers paid nothing.
  • Income tax became a mass tax during World War II when the government lowered the income threshold to fund the war effort.
  • Payroll withholding — the system where your employer deducts tax from your paycheck — began in 1943 and remains the standard today.

Why the Supreme Court blocked income tax before 1913

Congress attempted to impose an income tax in 1894 to help pay for government operations. The Supreme Court ruled in Pollock v. Farmers' Loan & Trust Co. (1895) that a direct tax on income from property was unconstitutional without apportionment among the states based on population. This decision made a national income tax impossible under the existing Constitution.

The ruling frustrated lawmakers who wanted a more flexible revenue source. Tariffs and excise taxes had been the main federal revenue tools, but they were unpopular and insufficient. The only way around the Court's decision was to amend the Constitution itself, which is what Congress did. The 16th Amendment was proposed in 1909 and ratified by enough states by 1913.

The original 1913 tax structure and who paid it

The 1913 income tax was a progressive tax, meaning the rate increased as income rose. A person earning $3,000 paid 1 percent; someone earning $20,000 paid 2 percent; the wealthiest paid 7 percent on income above $500,000. These rates seem low today, but they were controversial at the time because most Americans had never paid a federal income tax before.

The tax had many exemptions and deductions. Married couples filing jointly had a higher threshold than single filers. Interest on state and local bonds was exempt. Charitable donations could be deducted. These features shaped the tax code that still exists today, though rates and thresholds have changed repeatedly.

Compliance was voluntary in the sense that there was no automatic withholding. Taxpayers calculated what they owed and sent payment to the Treasury. The IRS (then called the Bureau of Internal Revenue) was small and had limited power to audit returns. Many wealthy people simply did not file.

How World War II transformed income tax into a mass tax

When the United States entered World War II in 1941, the government needed enormous sums to fund the military. Congress raised tax rates sharply and lowered the income threshold so that millions of middle-class workers had to file for the first time. By 1945, roughly 40 million people were paying income tax, compared to about 4 million in 1939.

This expansion was meant to be temporary — a wartime measure. But after the war ended, Congress kept the broad tax base and the higher rates. Income tax never returned to being a tax on only the wealthy. Instead, it became the largest source of federal revenue, a role it still holds.

The government also introduced payroll withholding in 1943 to handle the flood of new taxpayers. Rather than waiting until the end of the year to collect taxes, employers would deduct a portion of each worker's paycheck and send it to the Treasury. This system made tax collection faster and more reliable. It also made people less aware of how much they were paying, since the money never reached their hands.

Tax rates and thresholds have changed many times since 1913

The income tax has been reformed dozens of times. During the 1950s and 1960s, the top marginal rate reached 90 percent on the highest earners. In the 1980s, President Ronald Reagan pushed through major cuts that lowered the top rate to 28 percent. The current tax code reflects changes made in 2017 and earlier reforms.

Income thresholds — the amount you must earn before you owe tax — also shift with inflation and with new laws. The standard deduction, which lets you subtract a fixed amount from your income before calculating tax, has grown over time. In 2024, the standard deduction is higher than it was in 2023, and it will likely be higher again in 2025.

State income taxes followed a different timeline. Some states had income taxes before 1913; others adopted them much later. A few states still have no income tax. The relationship between federal and state income tax is separate, and your obligations to each are independent.

How the income tax system works today

The modern income tax system is built on the foundation laid in 1913 and expanded during World War II. You file a return each year reporting your income from wages, self-employment, investments, and other sources. You report deductions and credits that reduce the tax you owe. The IRS compares what you paid through withholding during the year against what you actually owe; if you overpaid, you get a refund, and if you underpaid, you owe the difference.

The tax code is now thousands of pages long and covers situations the 1913 framers never imagined: stock options, cryptocurrency, rental income from short-term vacation rentals, and more. But the basic structure remains: income is taxed at progressive rates, certain deductions and credits reduce your liability, and withholding spreads the payment across the year.

Frequently Asked Questions

Did people pay income tax before 1913?

Yes, but only twice and briefly. Congress imposed an income tax during the Civil War (1861–1872) and again in 1894. The 1894 tax was struck down by the Supreme Court as unconstitutional. No federal income tax existed between 1872 and 1913.

Why did the government need the 16th Amendment?

The Supreme Court ruled in 1895 that a direct tax on income from property was unconstitutional without apportionment among states. The 16th Amendment removed that requirement, allowing Congress to tax income directly and nationally. Without it, an income tax would have been impossible.

When did most Americans start paying income tax?

During World War II. In 1939, about 4 million people filed income tax returns. By 1945, that number had grown to roughly 40 million. The government lowered the income threshold to fund the war, and the broad tax base remained after the war ended.

Has the income tax rate always been the same?

No. The original 1913 top rate was 7 percent. It reached 90 percent in the 1950s–1960s, fell to 28 percent in the late 1980s, and has fluctuated since. Congress changes tax rates and thresholds regularly through new legislation.