You probably think the IRS has been around forever. Honestly, it feels that way when April 15th rolls around. But the truth is that for the first century of the American experiment, the idea of the government reaching directly into your paycheck was basically considered an act of war. It wasn't just unpopular; it was seen as un-American.
So, when did income tax start in the United States? It wasn't 1913, though that’s the date everyone highlights in history class. The real story starts much earlier, fueled by the desperation of a country literally tearing itself apart. We’re talking about the Civil War. Before 1861, the federal government mostly paid its bills through customs duties and selling off land. But when the North and South started shooting at each other, the bills got real big, real fast.
The Desperate Days of 1861
Abraham Lincoln was in a bind. War is expensive. By 1861, the Union was hemorrhaging cash, and the old ways of funding the government—taxing imported liquor and tobacco—just weren't cutting it. That’s when the first federal income tax was born.
It was a flat tax. 3% on all income over $800.
Think about that for a second. In 1861, $800 was a decent chunk of change. Most people didn’t even earn enough to qualify, so it was really a tax on the wealthy elite to fund the Union Army. But it didn't stay simple for long. By 1862, they realized they needed even more money, so they introduced a progressive scale. This is where the seed of our current system was planted.
But here’s the kicker: it was temporary.
Once the war ended and the debt started to settle, the public’s tolerance for this "emergency measure" evaporated. By 1872, the tax was repealed. For a brief moment, Americans went back to a world where their entire paycheck stayed in their pockets. That lasted for about twenty years until the populist movement of the 1890s decided the rich weren't paying their fair share of the country's growth.
The Supreme Court Drama of 1895
In 1894, Congress tried again. They passed the Wilson-Gorman Tariff Act, which included a 2% tax on incomes over $4,000.
The wealthy went berserk.
📖 Related: PDI Stock Price Today: What Most People Get Wrong About This 14% Yield
They took it all the way to the Supreme Court in a landmark case called Pollock v. Farmers' Loan & Trust Co. The court actually agreed with the rich guys. They ruled that an income tax was a "direct tax" and, according to the Constitution at the time, direct taxes had to be apportioned among the states based on population. Since the 1894 law didn't do that, the court struck it down.
It was a massive win for the anti-tax crowd. But it also created a massive problem. The country was industrializing. The gap between the ultra-wealthy "Robber Barons" and the working class was becoming a canyon. People were angry. The government needed a way to tax the massive fortunes being made in steel, oil, and railroads without the Supreme Court getting in the way.
1913: The Year Everything Changed
This brings us to the big one. The 16th Amendment.
If you want the "official" answer to when did income tax start in the United States in its modern form, this is it. By 1909, even some Republicans (who usually hated taxes) realized that if they didn't create a legal framework for income tax, there might be a literal revolution. They proposed an amendment to the Constitution.
The 16th Amendment is short and sweet. It basically says: "Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States."
It was ratified in February 1913.
By October of that year, President Woodrow Wilson signed the Revenue Act of 1913. If you saw the tax rates back then, you’d probably cry. The bottom rate was 1%. The top rate, for people making over $500,000 (millions in today’s money), was only 7%. Most Americans still paid absolutely nothing because the exemptions were so high. It was a "rich man's tax" meant to balance the scales of the Gilded Age.
World War II and the "Mass Tax"
If 1913 was the birth of the tax, World War II was its steroid phase.
👉 See also: Getting a Mortgage on a 300k Home Without Overpaying
Before the 1940s, only about 4 million Americans filed tax returns. It was still a niche thing. But total war requires total funding. The government needed to build B-24 bombers and aircraft carriers. The Revenue Act of 1942 changed everything. It lowered exemptions so that suddenly, 43 million Americans were on the hook.
This is also when withholding started.
Before 1943, you paid your taxes in one big lump sum at the end of the year. You can imagine how well that went. People didn't save the money. To make sure the government got its cash to fund the war effort, they started taking it directly out of people's paychecks before they even saw it. It was supposed to be a temporary wartime measure.
It never went away.
Why Does This History Actually Matter Today?
Understanding when did income tax start in the United States isn't just a trivia game. It explains why our current system is such a mess of contradictions.
We have a system designed for a 19th-century agrarian society that was forcibly updated for a 20th-century industrial powerhouse, now trying to function in a 21st-century digital world. Every time the tax code changes, it’s usually a reaction to a crisis—a war, a depression, or a massive shift in who holds the wealth.
For instance, consider the "Alternative Minimum Tax" (AMT). It was created in 1969 because Congress found out that 155 high-income households paid zero taxes. Now, because of inflation and how the law was written, it often hits middle-class families. The history of American taxation is basically a series of "temporary" fixes that became permanent furniture in the room.
Myths and Misconceptions
There’s a popular theory floating around the internet that the 16th Amendment was never properly ratified and therefore income tax is "illegal."
✨ Don't miss: Class A Berkshire Hathaway Stock Price: Why $740,000 Is Only Half the Story
Let’s be real: that doesn’t hold up in court.
People have tried to argue this for decades. Every single time, the federal courts shut it down. Whether or not you like the tax, the legal reality is that the 16th Amendment is part of the bedrock of the U.S. financial system. Fighting it on "legal" grounds usually just results in heavy fines or jail time.
Another misconception is that the tax has always been as high as it is now. In reality, during the 1950s—the supposed "Golden Age" of the American middle class—the top marginal tax rate was a staggering 91%. Of course, almost nobody actually paid that because of loopholes, but the "sticker price" of taxes has fluctuated wildly over the last century.
Real-World Action Steps
Since you can't go back in time to 1860 and stop the first tax from happening, the best thing you can do is manage the system we have.
- Audit your withholdings. Most people give the government an interest-free loan every year by overpaying their withholdings. Use the IRS Tax Withholding Estimator to see if you’re taking home less than you should be.
- Max out your "Tax-Advantaged" buckets. The government actually gives you "tax-free" zones like 401(k)s, IRAs, and HSAs. These are your best defense against a system that has been expanding since the Civil War.
- Keep historical records. Tax laws change every few years. What worked for your parents probably won't work for you. Stay updated on "sunset clauses" in current tax laws, like the changes coming to the Tax Cuts and Jobs Act (TCJA) in the next couple of years.
- Look into your state. Remember, federal income tax is only half the battle. States like Florida, Texas, and Washington have no state income tax, which is a throwback to the pre-1913 era of American life.
The history of the U.S. income tax is a story of shifting the burden. It started as a way to fund a war, turned into a way to curb the power of billionaires, and eventually became the primary engine of the federal government. Knowing where it came from helps you navigate where it's going—and how to keep more of your own money in the process.
Key Takeaways to Remember:
- 1861: First federal income tax (Civil War emergency).
- 1895: Supreme Court strikes down income tax as unconstitutional.
- 1913: 16th Amendment ratified, making income tax permanent and legal.
- 1943: Payroll withholding begins as a "temporary" WWII measure.
- Today: The system is a complex web of these historical layers.
Managing your tax liability starts with understanding that the rules weren't written in stone—they were written in response to specific moments in history. Use that knowledge to your advantage by leveraging every legal deduction and credit available to you.