When Did Federal Income Tax Start? A Comprehensive Guide

The Genesis of Federal Income Tax

The concept of federal income tax in the United States originated during the American Civil War. To fund the war effort, the Revenue Act of 1861 imposed a flat tax of 3% on annual incomes exceeding $800.

Temporary Suspension and Reinstatement

After the Civil War, the income tax was repealed in 1872. However, the Spanish-American War in 1894 necessitated the reintroduction of an income tax.

The Sixteenth Amendment

The Sixteenth Amendment to the U.S. Constitution, ratified in 1913, granted Congress the power to levy taxes on incomes without apportionment among the states. This amendment paved the way for a permanent federal income tax system.

The First Federal Income Tax Law

The Underwood Tariff Act of 1913 marked the enactment of the first federal income tax law. It imposed a graduated income tax with rates ranging from 1% to 7% on individual incomes over $3,000.

Key Dates and Milestones

• 1861: Revenue Act imposes a 3% tax on incomes over $800.
• 1872: Income tax repealed after the Civil War.
• 1894: Income tax reintroduced during the Spanish-American War.
• 1913: Sixteenth Amendment ratified, giving Congress the power to tax incomes.
• 1913: First federal income tax law (Underwood Tariff Act) enacted.

Conclusion

The federal income tax has undergone significant changes and reforms over the years, but its origins can be traced back to the 1860s. The Sixteenth Amendment paved the way for a permanent and progressive income tax system that has remained a cornerstone of the U.S. tax system to this day.