Revenue Act of 1913 - Income Tax

Income Tax

The Act also provided for the reinstitution of a federal income tax as a means to compensate for anticipated lost revenue because of the reduction of tariff duties. The most recent effort to tax incomes (Wilson-Gorman Tariff of 1894) had been declared unconstitutional by the Supreme Court because the tax on dividends, interest, and rents had been deemed to be a direct tax not apportioned by population. That obstacle, however, was removed by ratification of the Sixteenth Amendment on February 3, 1913. The Act provided in part that:

subject only to such exemptions and deductions as are hereinafter allowed, the net income of a taxable person shall include gains, profits, and income derived from salaries, wages, or compensation for personal service of whatever kind and in whatever form paid, or from professions, vocations, businesses, trade, commerce, or sales, or dealings in property, whether real or personal, growing out of the ownership or use of or interest in real or personal property, also from interest, rent, dividends, securities, or the transaction of any lawful business carried on for gain or profit, or gains or profits and income derived from any source whatever

The incomes of couples exceeding $4,000, as well as those of single persons earning $3,000 or more, were subject to a one percent federal tax. Further, the measure provided a progressive tax structure, meaning that high income earners were required to pay at higher rates.

It would require only a few years for the federal income tax to become the chief source of income for the government, far outdistancing tariff revenues.

Less than 1% of the population paid federal income tax at the time.

The act was applicable to incomes for 1913, 1914, and 1915.