The federal income tax began in 1913

The U.S. federal income tax as we know it today started 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 government had tried income taxes during the Civil War and briefly afterward, but those were temporary and eventually repealed.

When the income tax returned in 1913, it applied only to the wealthiest Americans. The first tax rate was just 1 percent on income above $3,000 — a threshold that excluded most working people at the time. Over the decades, tax rates and brackets have changed many times, shaped by wars, recessions, and shifts in tax policy.

Key Takeaways

  • The 16th Amendment, ratified in 1913, created the permanent federal income tax system that still exists today.
  • The original 1913 income tax only affected wealthy Americans and started at a 1 percent rate on high earners.
  • Income tax rates and the number of tax brackets have changed repeatedly throughout the 20th and 21st centuries based on economic conditions and policy decisions.
  • The income tax became the largest source of federal revenue and funds most government operations, from defense to Social Security.

Why the income tax was created

Before 1913, the federal government relied mainly on tariffs — taxes on imported goods — to fund its operations. As the country grew and government spending increased, tariffs alone could not raise enough money. Congress needed a new revenue source.

The Supreme Court had blocked an earlier income tax attempt in 1895, ruling that the Constitution did not allow it. This legal barrier prompted the push for the 16th Amendment. When enough states ratified it in 1913, Congress finally had the constitutional authority to tax income directly.

How the income tax has changed since 1913

The tax system has been overhauled many times. During World War I and World War II, tax rates climbed sharply to fund military spending. In the 1950s and 1960s, the top tax rate reached 90 percent or higher on the wealthiest earners. By the 1980s, major tax reforms lowered those rates significantly.

The number of tax brackets — the income ranges that determine your tax rate — has also shifted. In 1913 there were just a few brackets. Today there are typically six or seven federal brackets, though the exact number and rates change when Congress passes new tax laws. The most recent major overhaul was the Tax Cuts and Jobs Act of 2017, which reshaped brackets and rates that remained in effect through 2025.

What income tax funds

Income tax is now the largest single source of federal revenue. The money collected goes to fund Social Security, Medicare, defense, infrastructure, education, and hundreds of other government programs. Without income tax, the federal government would not be able to operate as it currently does.

State and local governments also collect income taxes in most states, though a few states have no income tax at all. Those state taxes fund schools, roads, police, and other local services. The federal and state systems operate separately, so you may owe taxes to both.

How income tax is collected today

Most workers have income tax withheld from their paychecks by their employer. The employer sends that money to the IRS on the worker's behalf throughout the year. At tax time, you file a return to report your total income and calculate whether you paid the right amount — or whether you owe more or are due a refund.

Self-employed people and those with income not subject to withholding must usually make estimated tax payments four times a year. Retirees, investors, and others with certain types of income also have their own reporting requirements. The IRS uses the information on your return to verify that you paid what you owed.

The difference between income tax then and now

In 1913, income tax was a luxury tax that touched only the richest households. Today it is a broad-based tax that affects most working Americans. The system has also become far more complex, with deductions, credits, and special rules for different types of income.

The 1913 tax code was relatively straightforward — just a few pages. The modern tax code runs thousands of pages and includes rules for everything from retirement accounts to education savings to business deductions. This complexity is one reason many people hire tax professionals or use tax software to file their returns.

Frequently Asked Questions

Did the U.S. have income tax before 1913?

Yes, but only temporarily. The government collected income taxes during the Civil War and for a few years afterward, but those taxes were repealed in 1872. The 1913 income tax was the first permanent federal income tax in U.S. history.

Why did the 16th Amendment need to happen?

The Supreme Court ruled in 1895 that Congress could not collect income tax without the Constitution being changed. The 16th Amendment removed that legal barrier and gave Congress the power to tax income directly, which it still has today.

What was the original income tax rate in 1913?

The original rate was 1 percent on income above $3,000, which was a very high threshold at the time. Only the wealthiest Americans owed any tax. The rate increased on higher income levels, reaching a top rate of 7 percent on the very highest earners.

Has the income tax rate always been the same?

No. Tax rates have changed many times since 1913. They have been as high as 90 percent on top earners and as low as around 37 percent in recent years. Congress changes the rates whenever it passes new tax legislation.

Do all states have income tax?

No. Nine states have no state income tax at all: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire (which taxes only investment income). Most other states collect income tax in addition to the federal tax.