The federal income tax began in 1913 with the 16th Amendment

The United States did not have a permanent federal income tax until 1913. Before that year, the government funded itself through tariffs on imported goods, excise taxes, and other levies. The 16th Amendment, ratified in February 1913, gave Congress the power to collect income tax without apportioning it among the states based on population — a requirement that had made earlier income taxes impractical.

That same year, the first federal income tax took effect under the Income Tax Act of 1913. It applied only to the wealthiest Americans. The tax started at 1 percent on incomes above $3,000 — a threshold that excluded roughly 98 percent of the population at the time. The law included a progressive structure, meaning higher earners paid higher rates, with a top rate of 7 percent on incomes above $500,000.

The reason this history matters to you now is that the tax code you file under today is built on the same constitutional foundation and the same basic structure — income brackets that rise with earnings, deductions for certain expenses, and filing requirements that have expanded and contracted over a century of amendments.

Key Takeaways

  • The 16th Amendment, ratified in 1913, gave Congress the constitutional power to tax income without dividing the revenue among states by population.
  • The first federal income tax in 1913 taxed only the richest Americans, with a 1 percent rate starting at $3,000 of income.
  • The original tax code used progressive rates, meaning higher earners paid higher percentages, a principle that remains in the tax system today.
  • Before 1913, the federal government relied on tariffs and excise taxes rather than income tax to fund operations.

Why an amendment was necessary

The Constitution originally did not allow Congress to tax income directly. In 1895, the Supreme Court ruled in Pollock v. Farmers' Loan & Trust Co. that a federal income tax was unconstitutional because it was a "direct tax" that had to be apportioned among states based on population. This made an income tax nearly impossible to administer — a state with 5 percent of the population would have to pay 5 percent of the total tax revenue, regardless of how much income its residents actually earned.

The 16th Amendment solved this problem by explicitly stating: "The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States." This single sentence removed the apportionment requirement and opened the door to the modern income tax system.

How the 1913 tax worked in practice

The Income Tax Act of 1913 was far simpler than today's code, but it established patterns you will recognize. Taxpayers reported their income on a form, claimed deductions for certain business expenses and losses, and paid tax on the remainder. The tax was progressive — the more you earned, the higher the percentage you paid.

Because the tax applied to so few people, the IRS did not exist yet. The Bureau of Internal Revenue (the predecessor to today's Internal Revenue Service) handled collections. Compliance was voluntary in the sense that there was no withholding from paychecks; individuals calculated what they owed and paid it in full. The government did not have the machinery to track millions of small taxpayers, so it did not try.

The tax expanded during World War I

The income tax remained narrow until the United States entered World War I in 1917. To fund the war effort, Congress raised tax rates dramatically and lowered the income threshold so that middle-class workers had to file. The top rate climbed to 77 percent by 1918. Withholding from paychecks was introduced in 1943 during World War II, but the groundwork was laid during the earlier war.

By the 1920s, the income tax had become the primary source of federal revenue, replacing tariffs. This shift fundamentally changed how the government funded itself and how ordinary Americans interacted with the tax system.

What changed between 1913 and today

The basic structure — progressive rates, deductions, and filing requirements — has remained constant for over a century. What has changed is the scope and complexity. In 1913, the form was a few pages. Today's tax code runs thousands of pages because Congress has added deductions, credits, and special rules for different types of income and taxpayers.

The threshold for filing has also changed many times. In 1913, only the wealthy filed. By the 1940s, millions of middle-class workers filed. Today, the threshold depends on your age, filing status, and type of income, but it still determines who must file a return.

The rate structure has also fluctuated. The top rate has ranged from 7 percent in 1913 to 94 percent in 1944 to 37 percent in recent years. Congress adjusts rates and brackets regularly, which is why your tax bill can change even if your income stays the same.

Why understanding the history helps you file

Knowing that the income tax is built on a progressive system helps explain why the tax code treats different types of income differently and why deductions matter. The original designers intended the tax to fall more heavily on the wealthy, and that principle still shapes how the code is written today.

Understanding that the tax was expanded during wartime also explains why certain deductions exist — many were created to encourage specific behaviors (saving for retirement, buying a home, donating to charity) during periods when the government wanted to stimulate the economy or reward certain activities.

Frequently Asked Questions

Did people pay income tax before 1913?

The United States collected income taxes during the Civil War (1861–1865) and briefly in the 1890s, but these were temporary. The 1913 income tax was the first permanent federal income tax. Before that, the government relied on tariffs on imported goods and excise taxes on items like alcohol and tobacco.

Why did it take an amendment to create an income tax?

The Supreme Court ruled in 1895 that income tax was unconstitutional because it was a "direct tax" that had to be divided among states by population, making it impractical. The 16th Amendment removed this requirement, allowing Congress to tax income directly without apportionment.

Was the 1913 income tax really only for the rich?

Yes. The tax started at $3,000 of income, which excluded roughly 98 percent of Americans at the time. It was not until World War I that Congress lowered the threshold and raised rates to fund the war effort, bringing middle-class workers into the system.

How did the IRS start if there were so few taxpayers in 1913?

The Bureau of Internal Revenue (the IRS's predecessor) existed before 1913 to collect excise taxes and tariffs. When the income tax began, the bureau straightforward added income tax to its duties. The agency did not grow into a large organization until millions of workers began filing during World War II.