You’re staring at your W-2 or a 1099, wondering where that chunk of your paycheck went. It’s a universal American experience. But if you’re asking when was federal income tax created, the answer isn't just a single date on a calendar. It’s actually a saga of wars, Supreme Court dramas, and a very specific constitutional amendment.
Most people point to 1913. That’s the "official" answer. But honestly? The government was trying to get its hands on your ancestors' income long before that.
The first time the U.S. government actually passed a federal income tax was 1861. We were in the middle of the Civil War. Wars are expensive. Really expensive. Abraham Lincoln and Congress realized they couldn't fund the Union Army just by taxing liquor and tobacco. So, they passed the Revenue Act of 1861. It was a flat 3% tax on annual incomes over $800.
It didn't last.
By 1872, the war was over, the debt was manageable, and the tax was repealed. For a few decades, Americans went back to a life where the IRS didn't exist. You kept what you earned. The government mostly ran on "tariffs"—taxes on imported goods. But that system had a major flaw: it hit poor people harder because it drove up the price of basic necessities.
The 1894 disaster and the Supreme Court showdown
By the late 1800s, the "Gilded Age" was in full swing. Huge fortunes were being made by industrial tycoons like Rockefeller and Carnegie. Meanwhile, farmers in the South and West were struggling. There was a massive push for a "progressive" tax—one where the rich paid more.
In 1894, Congress tried again. They passed the Wilson-Gorman Tariff Act, which included a 2% tax on incomes over $4,000. Very few people actually had to pay it.
Then came Charles Pollock.
Pollock was a shareholder in Farmers' Loan & Trust Co. He sued the company to stop them from paying the tax. The case went all the way to the Supreme Court. In Pollock v. Farmers' Loan & Trust Co. (1895), the Court dropped a bombshell: they ruled the income tax was unconstitutional. They argued it was a "direct tax" that wasn't apportioned among the states based on population, as required by Article I of the Constitution.
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Basically, the Court told Congress, "You can't do this."
Why the 16th Amendment changed everything in 1913
So, if the Supreme Court said no, how do we have taxes today? Simple. They changed the rules of the game.
To get around the Pollock decision, the government needed a Constitutional Amendment. This is why, when people ask when was federal income tax created in its modern form, the answer is February 3, 1913. That’s when Wyoming became the 36th state to ratify the 16th Amendment.
The wording was short but powerful:
"The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration."
This wiped away the Supreme Court’s objection. Congress immediately got to work. They passed the Revenue Act of 1913.
If you think your taxes are high now, look at the 1913 rates. The bottom rate was 1%. The top rate? Only 7% on incomes over $500,000 (which is millions in today’s money). Less than 1% of the population even had to file a return. It was a "rich person's problem."
World War II and the "Mass Tax" shift
For a while, the income tax stayed relatively small. Then World War II happened.
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The government needed cash. Fast. The Revenue Act of 1942 changed the income tax from a "class tax" for the wealthy into a "mass tax" for everyone. The number of people paying income tax jumped from about 7 million in 1939 to 42 million by 1945.
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 the chaos. People didn't save enough. So, the government started taking it directly out of paychecks before you ever saw the money. Beardsley Ruml, the chairman of the Federal Reserve Bank of New York at the time, was the guy who pushed this "pay-as-you-go" system.
It was supposed to be a temporary wartime measure. We’re still doing it 80 years later.
Key milestones in the tax timeline
- 1861: First federal income tax created to fund the Civil War (repealed in 1872).
- 1894: Second attempt at income tax; struck down by the Supreme Court a year later.
- 1909: Congress proposes the 16th Amendment.
- 1913: The 16th Amendment is ratified. The modern federal income tax is born.
- 1935: The Social Security Act adds payroll taxes to the mix.
- 1943: Employers begin withholding taxes directly from paychecks.
- 1986: The Tax Reform Act simplifies brackets (temporarily) and closes loopholes.
The IRS wasn't always the IRS
It’s kinda funny to think about, but the Internal Revenue Service used to be much smaller. It started as the "Office of the Commissioner of Internal Revenue" in 1862. Back then, they didn't have computers or high-tech audits. It was all handwritten ledgers and agents visiting businesses in person.
The name didn't officially change to the Internal Revenue Service until 1953.
By the 1950s, tax rates were actually much higher than they are now. Under President Eisenhower—a Republican—the top marginal tax rate was 91%. Now, there were way more deductions back then, so people didn't actually pay 91% of their total income, but the "sticker price" for the wealthy was astronomical compared to today’s 37% top bracket.
Common myths about the creation of income tax
You’ll hear some people claim that the 16th Amendment was never properly ratified. This is a favorite "tax protestor" theory. They argue that Ohio wasn't technically a state in 1913 or that there were spelling errors in the documents sent to the states.
Honestly? Don't fall for it.
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Every single court that has looked at these arguments has rejected them. The "fringe" legal theories might sound interesting on a forum, but the reality is that the federal government's power to tax income is legally airtight. If you stop paying because of a YouTube video you saw, the IRS will eventually find you. Just ask Wesley Snipes.
Another misconception is that the income tax was meant to replace tariffs entirely. While it did allow tariffs to go down, the government didn't just swap one for the other—they kept both and grew the total budget.
How to use this history to your advantage
Knowing when was federal income tax created won't get you a refund, but understanding how the system evolved helps you navigate it. The tax code isn't just a list of costs; it's a list of incentives.
Ever wonder why you get a tax break for a mortgage? Or for having kids? Or for putting money in a 401(k)?
The government uses the tax code to "nudge" society in certain directions. Because the 16th Amendment gave them such broad power ("from whatever source derived"), they can pretty much tax anything, but they choose to give back money if you do things they like (like saving for retirement).
Actionable insights for the modern taxpayer
- Check your withholding annually. The "Pay-as-you-go" system from 1943 is still in effect. If you're getting a massive refund, you're giving the government an interest-free loan. If you owe a ton, you might hit underpayment penalties. Use the IRS Tax Withholding Estimator at least once a year.
- Look for "Legislative Sunset" dates. Tax laws change constantly. For example, many provisions of the Tax Cuts and Jobs Act (TCJA) of 2017 are set to expire at the end of 2025. This means your tax brackets might jump up automatically in 2026 unless Congress acts.
- Understand Marginal vs. Effective rates. Just like in 1913, we have a progressive system. Being in the "24% bracket" doesn't mean the IRS takes 24% of your total check. It only takes that much on the portion of your income that falls into that specific bucket.
- Document everything. The IRS has a three-year statute of limitations for most audits, but if they suspect "substantial understatement" of income, they can go back six years. If they suspect fraud? No limit. Keep your records.
The system we have today is a far cry from the tiny 1% tax of 1913. It's a massive, complex machine that evolved through world wars and economic crises. While it’s rarely fun to pay, it’s the price of admission for the modern infrastructure and services we use every day.
If you're feeling overwhelmed by the paperwork, just remember: at least you don't have to pay a 91% top rate like they did in the fifties. Perspective is everything.
Next Steps for You:
- Audit your W-4: Log into your payroll portal and see how many "allowances" or extra withholdings you have set. If your life has changed (marriage, house, kid), that form is likely outdated.
- Dig into the 2025-2026 changes: Since the 2017 tax cuts are expiring soon, talk to a professional about "income shifting" or realizing capital gains now while rates are lower.
- Organize your digital paper trail: Create a dedicated folder for this year's receipts and 1099s now, rather than scrambling in April. Your future self will thank you.