The federal income tax began in 1861 as a temporary Civil War measure

The United States first collected federal income tax in 1861, when Congress needed money to fund the Civil War. This was not the first income tax in American history — there had been a brief one during the War of 1812 — but the 1861 version was the first to become a permanent part of the tax system, even though it was originally meant to expire when the war ended.

The initial tax was small and affected only the wealthy. It taxed incomes above $800 per year, which was a substantial sum at the time — roughly equivalent to $28,000 in 2024 dollars. Most working people paid nothing. The tax rate started at 3 percent and rose during the war years as the government's expenses grew.

After the Civil War ended in 1865, Congress kept the income tax in place, though it gradually lowered the rates and raised the income threshold. The tax remained until 1872, when Congress allowed it to expire entirely. For the next 17 years, the federal government had no income tax at all.

Key Takeaways

  • Federal income tax started in 1861 as a temporary war tax but became permanent during the Civil War years.
  • The original 1861 tax only affected people earning more than $800 per year, leaving most workers untouched.
  • Congress ended the income tax in 1872, and no federal income tax existed from 1872 until 1913.
  • The 16th Amendment, ratified in 1913, gave Congress the power to collect income tax without apportioning it among the states.

Why Congress brought back income tax in 1913

In 1894, Congress tried to reinstate the income tax without a constitutional amendment. The Supreme Court ruled in Pollock v. Farmers' Loan & Trust Co. that a direct income tax on property (including investments) was unconstitutional unless Congress apportioned it among the states based on population. This made an 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 its residents actually earned.

To fix this problem, Congress proposed the 16th Amendment in 1909. The amendment stated straightforward that Congress could collect income tax "without apportionment among the several States." Enough states ratified it by February 1913, and it became law. That same year, Congress passed the first permanent income tax under the new amendment.

The 1913 income tax was also designed to hit only the wealthy. It taxed incomes above $3,000 per year — roughly $95,000 in 2024 dollars — at a rate of just 1 percent. A person earning $20,000 paid 2 percent. Only about 3 percent of the population owed any income tax at all.

How income tax expanded during the world wars

The income tax remained a tax on the wealthy until World War I. As the United States prepared for and then entered the war, Congress raised rates sharply and lowered the income threshold. By 1918, the top rate had climbed to 77 percent, and the tax now reached into the middle class.

After World War I ended, rates fell again, but they never returned to the 1913 levels. The income tax had become a major source of federal revenue, and Congress kept it in place during the 1920s and 1930s.

When World War II began, Congress again raised rates and lowered the threshold. By 1944, the top rate reached 94 percent, and the income tax had become a mass tax affecting tens of millions of workers. Congress also introduced withholding — the system where employers deduct tax from each paycheck — to make it easier to collect from so many people. This system remains in place today.

The income tax threshold and rates have changed many times since 1913

Congress has adjusted the income tax threshold and rates dozens of times since 1913. Sometimes it has lowered rates to stimulate the economy; sometimes it has raised them to fund wars or reduce deficits. The number of tax brackets — the income ranges taxed at different rates — has also changed. In 1913 there were seven brackets. In some years there have been as many as 50 or more.

The threshold for owing income tax has moved up and down as well. In some years, Congress has raised it to reduce the number of people who owe tax. In other years, it has lowered it or kept it flat while inflation eroded its value, bringing more people into the tax system. The threshold depends on your filing status and changes each year based on inflation.

Major tax law changes happened in 1954, 1969, 1986, 2001, 2017, and many other years. Each change reflected different ideas about how much tax the wealthy should pay, how much the middle class should pay, and what kinds of income or expenses should be taxed or deducted.

Why the income tax became the main source of federal revenue

Before 1913, the federal government relied mainly on tariffs — taxes on imported goods — to fund itself. Tariffs were unpopular because they raised prices for consumers, but they did not require the government to track individual incomes or enforce a complex system of tax collection.

The income tax changed this. It allowed the federal government to raise large amounts of money directly from individuals and businesses based on what they earned. Over time, especially after World War II, income tax became the largest single source of federal revenue. Today it accounts for roughly half of all federal tax revenue.

This shift happened because income tax could raise more money than tariffs without raising consumer prices as much, and because the government's expenses — especially for defense and social programs — grew far larger than they had been in the 1800s.

Frequently Asked Questions

Did people pay federal income tax before 1861?

Yes, but only briefly. The United States collected income tax during the War of 1812, but it ended when the war did. There was no federal income tax again until 1861. From 1872 to 1913, there was no federal income tax at all.

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

The Court ruled that a direct tax on income from property had to be apportioned among the states based on population, not on actual income earned. This made the tax unworkable. The 16th Amendment fixed this by letting Congress tax income without apportionment.

When did income tax start affecting ordinary workers, not just the wealthy?

During World War I, Congress lowered the income threshold and raised rates to fund the war effort. By 1918, middle-class workers owed income tax. After World War II began, the tax expanded even further, and withholding was introduced to collect it from millions of workers.

Has the income tax rate always been the same?

No. The rate has changed many times. In 1913 it was 1 percent on high incomes. It reached 77 percent during World War I and 94 percent during World War II. Since then, rates have ranged from the low teens to the high 30s, depending on the year and the tax law in effect.

Why do we still have income tax if it was supposed to be temporary?

The 1861 income tax was meant to be temporary, but Congress kept it after the Civil War ended because it raised significant revenue. When it expired in 1872, the government found it hard to fund itself without it. The 16th Amendment in 1913 made income tax permanent and constitutional.