One Hundred Years of the Federal Income Tax


It was 100 years ago this year that the first Form 1040 was Sixteenth Amendmentsent out to taxpayers as ratification of the Sixteenth Amendment to the US Constitution made it possible for the federal government to tax personal incomes.

The new tax started at 1% on personal incomes of more than $3,000 (over $71,000 in today’s dollars) for single filers or $4,000 for couples and included a surtax of 6% on incomes over $500,000. Taxpayers were required to complete the new form and submit it to local tax collectors for review by March 1, 1914, where it was forwarded to Washington for a second review at Bureau of Internal Revenue (predecessor of the IRS) headquarters. The total tax due was to be presented to the taxpayer by June 1, 1914 and final tax payment received by June 30, 1914.

Much like today’s taxes, the process was confusing to all involved and prompted the LA Times to lament “The present income tax law is so confusing to the ordinary taxpayer that assistance in the preparation of the income statement is almost necessary.”

The maximum income tax rate has been up and down throughout the last 100 years starting at 7% in 1913 and rising to a high point of 94% during the final years of World War II (1944-45). It stayed over 90% until 1964 when under President Johnson, it was reduced to 77%. Highest Marginal Tax Rates 1913-2013 with SourceIt was reduced again in 1965 to 70% where it stayed until 1981. In that year, Congress enacted the largest tax cut in US history by dropping the highest marginal rate to 50% under The Economic Recovery Tax Act of 1981. The trend continued downward until the maximum income tax rate hit 31% in 1991 and 1992, the lowest point since 1931 when rates were 25%. It is probably safe to say that our current rates which range from 10% to a marginal rate of 39.6% will undergo future changes.  As recently as 2013, we saw the addition of the Net Investment Income Tax (NIIT – see our report Certainty of Taxes for more information on this tax) and changes to the capital gains rate.  There may be more changes to come.

For a more expansive history of our tax structure see our report on the Sixteenth Amendment.