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When Did Congress Start Taxing Income

The answer to "when did Congress start taxing income" elicits different responses. This history of the income tax goes back to the Civil War or to the early years of the 20th Century. Taxing income is a fairly new concept, when you consider the age of the United States.

What is an Income Tax?

When Did Congress Start Taxing Income

The income tax imposed on United States’ citizens is a percentage of your annual income paid to the IRS, which is a function of the United States government. This helps the government pay for goods and services, distribute salaries and pay down the national debt. How much you pay depends on what "tax bracket" you are in, or how much you make in a year. For example, if you make less than $25,000, you pay less than someone who makes $25,001 to $39,000. The current tax code is based on a percentage of income determined by your tax bracket. There are some proponents of a flat tax, which is believed to make paying taxes fairer and filing taxes simpler.

When Did Congress Start Taxing Income: The First Taxes

The Revenue Act of 1861 became the first tax on individual incomes. Congress passed the act to aid in funding the Civil War. Any person living in the United States paid the tax, which was collected from any income derived from any profession. The Act also taxed income that came from overseas, as long as the person receiving the income lived in the United States. If an individual lived outside the States, but was a citizen, they were taxed at 5% instead of 3% if a person made over $800.

The following year, the Revenue Act of 1862 overrode the first income tax law. The minimum amount that was taxed at 3% lowered to $600 and the tax withholding happened at the employer. Abraham Lincoln signed both acts.

The Revenue Act of 1864 continued the progressive tax feature of the Revenue act of 1862 by increasing the amount taxed and including four different tax brackets.

  • If a person made under $600, they were taxed at 0%.
  • Between $600 and $5,000, the individual was taxed at 5%.
  • Between $5,000 and $10,000, taxes were calculated at 7.5%.
  • Finally, if someone made $10,000 and above, then they paid 10% in taxes.

Flat Rates

Congress attempted a flat rate Federal tax in 1894. The U.S. Supreme Court deemed this act unconstitutional just one year later because the tax did not adjust with the varying populations of each state since it was a direct tax. If you lived in a populous state, then you paid the same amount as someone living in a less populated state.

To fix this, Congress ratified the 16th amendment. This lets the government impose income tax on you no matter what the population of each state is. The Revenue Act of 1913 was still a progressive tax and was mainly designed to make up the difference in lost money when the government lowered tariff rates. With the underlying premise that those who made more money would pay more taxes, income taxes quickly became a large source of revenue for the Federal Government.

Fun Facts

Do you think that April 15th was always the last day to file taxes? When the main tax code was written in 1913, Congress designated March 1st as the final day to file taxes. Five years later, Congress switched the date to March 15th and it stayed that way until 1954. That year, Congress choose April 15th because the IRS found that they needed more time to handle the work as the number of individuals filing taxes increased. An earlier theory speculated the IRS wanted to ensure they received filings from the wealthy before they disappeared on vacations for the summer, but that theory didn't hold.

More Information

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