FYI - here is a brief history of income taxes in the United States -
1643: The colony of New Plymouth, Massachusetts levies the first recorded
income tax in America.
1861: Congress passed the first income tax law as an emergency measure to fund the Civil War.
1872: Congress repeals the income tax law.
1884: The Enabling Act of 1884,
aka The Horse Act of 1884 created what is today known as the Enrolled Agent by
allowing individuals appointed by the Treasury Department to assist individuals
with claims against the United States.
1894: As a response to complaints that excessive reliance on tariffs as a source of revenue resulted in an increase in the cost of imported goods, Congress again passed an income tax law.
1895: The US Supreme Court ruled that the income tax law was unconstitutional.
1913: In February the 16th Amendment, which states "Congress shall have the power to lay and collect tax on incomes, from whatever sources derived, without apportionment among the several states, and without regard to any census or enumeration", was ratified by the necessary 3/4 of the states. On October 3rd Congress passed the Revenue Act of 1913, which created the first permanent US income tax.
Under this act, the first $3000 of income for single persons and $4000 for married couples was exempt from taxation. A "normal" tax of 1% was applied to income above $3000 or $4000, and a "super" tax of from 1-6% was applied to income in excess of $20,000. Deductions were allowed for business expenses (including depreciation), interest paid on "personal indebtedness", all national, state, county, school and municipal taxes paid, casualty losses, and worthless debt. In the first year only 1 out of every 271 American citizens were taxed and $28 Million in revenue was raised.
1916: The Federal Eatate Tax was enacted to help generate additional revenue to fund America's anticipated entry into the first World War.
1917: Congress raised tax rates in response to the increasing cost of the war and approved credit for dependents and deductions for charitable contributions.
1918: The maximum combined basic and super income tax rate reached 77%.
1922: For the first time preferential tax treatment was provided for capital gains.
1932: The tax law was amended to provide that US presidents were liable for federal income tax on their salaries. Franklin Roosevelt was the first president since Abraham Lincoln to pay federal income tax on his presidential salary.
1935: The Social Security tax, 1% on the first $3000 of wages, was enacted.
1941: Tax tables for low-income taxpayers were introduced, simplifying the calculation of tax liability.
1942-1945: New tax laws, in response to the cost of World War 2, created withholding on wages, more tax brackets for lower income taxpayers, the standard deduction, a personal exemption for dependents, a deduction for medical expenses, and increased tax rates. By the end of the war the maximum tax rate was 94%.
1953: The Bureau of Internal Revenue becomes the Internal Revenue Service.
1954: Congress completely revised the Tax Code, changing rates, redefining Adjusted Gross Income, and adding credits for retirement income and dividends and new itemized deductions.
1961: Taxpayers were required to provide their Social Security or other taxpayer identification number to banks and other financial institutions so they could report interest and dividend payments to the IRS.
1964: Tax rates were reduced from a range of from 20% to 94% to from 16% to 77%. The Income Averaging method of tax computation was introduced.
1970: Congress created a Minimum Tax so high-income individuals could not completely avoid paying taxes through the use of preferential tax shelters, loopholes and deductions.
1861: Congress passed the first income tax law as an emergency measure to fund the Civil War.
1872: Congress repeals the income tax law.
1894: As a response to complaints that excessive reliance on tariffs as a source of revenue resulted in an increase in the cost of imported goods, Congress again passed an income tax law.
1895: The US Supreme Court ruled that the income tax law was unconstitutional.
1913: In February the 16th Amendment, which states "Congress shall have the power to lay and collect tax on incomes, from whatever sources derived, without apportionment among the several states, and without regard to any census or enumeration", was ratified by the necessary 3/4 of the states. On October 3rd Congress passed the Revenue Act of 1913, which created the first permanent US income tax.
Under this act, the first $3000 of income for single persons and $4000 for married couples was exempt from taxation. A "normal" tax of 1% was applied to income above $3000 or $4000, and a "super" tax of from 1-6% was applied to income in excess of $20,000. Deductions were allowed for business expenses (including depreciation), interest paid on "personal indebtedness", all national, state, county, school and municipal taxes paid, casualty losses, and worthless debt. In the first year only 1 out of every 271 American citizens were taxed and $28 Million in revenue was raised.
1916: The Federal Eatate Tax was enacted to help generate additional revenue to fund America's anticipated entry into the first World War.
1917: Congress raised tax rates in response to the increasing cost of the war and approved credit for dependents and deductions for charitable contributions.
1918: The maximum combined basic and super income tax rate reached 77%.
1922: For the first time preferential tax treatment was provided for capital gains.
1932: The tax law was amended to provide that US presidents were liable for federal income tax on their salaries. Franklin Roosevelt was the first president since Abraham Lincoln to pay federal income tax on his presidential salary.
1935: The Social Security tax, 1% on the first $3000 of wages, was enacted.
1941: Tax tables for low-income taxpayers were introduced, simplifying the calculation of tax liability.
1942-1945: New tax laws, in response to the cost of World War 2, created withholding on wages, more tax brackets for lower income taxpayers, the standard deduction, a personal exemption for dependents, a deduction for medical expenses, and increased tax rates. By the end of the war the maximum tax rate was 94%.
1953: The Bureau of Internal Revenue becomes the Internal Revenue Service.
1954: Congress completely revised the Tax Code, changing rates, redefining Adjusted Gross Income, and adding credits for retirement income and dividends and new itemized deductions.
1961: Taxpayers were required to provide their Social Security or other taxpayer identification number to banks and other financial institutions so they could report interest and dividend payments to the IRS.
1964: Tax rates were reduced from a range of from 20% to 94% to from 16% to 77%. The Income Averaging method of tax computation was introduced.
1970: Congress created a Minimum Tax so high-income individuals could not completely avoid paying taxes through the use of preferential tax shelters, loopholes and deductions.
1972: Robert D Flach, who would become the internet't WANDERING TAX PRO, begins work as an apprentice tax preparer.
1974: Congress created the deductible Individual Retirement Arrangement (IRA), known popularly as the Individual Retirement Account, for taxpayers not covered by employer pension plans.
1975: Low-income taxpayers were allowed to claim a refundable Earned Income Credit (EIC).
1979: Unemployment compensation was made partially taxable.
1981: Tax legislation reduced tax rates by 25% over 3 years, indexed tax brackets for inflation, and applied the same tax rates to earned and unearned income.
1984: For the first time recipients of Social Security and Railroad Retirement benefits were subject to tax on up to 50% of the benefits received, depending on the recipient's income.
1986: The largest revision of the Tax Code since 1954, the Tax Reform Act of 1986, was enacted. The law reduced the number of tax brackets from 14 to 2, decreased the maximum tax rate from 50% to 28%, repealed the dividend exclusion, Income Averaging, the itemized deduction for sales tax paid and the preferential treatment of long-term capital gains, introduced the passive activity rules, the Kiddie Tax, the deduction from gross income for health insurance premiums paid by self-employed individuals, and the 2% of AGI limitation on most miscellaneous itemized deductions, phased out the itemized deduction for personal (credit card, auto loan, etc.) interest, limited the deduction for business meals and entertainment to 80%, and replaced the additional personal exemption s for age 65 and blind with an increased standard deduction.
1987: For the first time taxpayers were required to list the Social Security number of dependent children, age 5 and over.
1990: The Revenue Reconciliation Act of 1990 added a third tax bracket (31%) and instituted the reduction of itemized deductions and phase-out of personal exemptions for high-income taxpayers.
1993: The Omnibus Budget Reconciliation Act added the 36% and 39.6% tax brackets, increased the maximum tax on Social Security benefits from 50% to 85%, and reduced the deduction for business meals and entertaining from 80% to 50%.
1998: In response to abusive treatment of taxpayers by the Internal Revenue Service, the IRS Reform and Restructuring Act of 1998 was enacted.
2001: Congress passed the Economic Growth and Tax Relief Reconciliation Act of 2001, the largest tax cut in over 20 years, with 85 major provisions. All provisions of this Act expired in 2011.
2003: Congress passed the Jobs and Growth Tax Relief Reconciliation Act of 2003 intended to stimulate the economy.
2006: Congress passed the Tax
Increase Prevention and Reconciliation Act of 2005, which prevented several tax
provisions from expiring and extended reduced tax rates on capital gains and
dividends and the alternative minimum tax reduction, and the Tax Relief and
Health Care Act of 2006, which extended many expired and expiring provisions
retroactively.
2008: Congress passed the Economic
Stimulus Act of 2008: Congress, again intended to stimulate the economy.
2010: Congress passed the Patient Protection and Affordable Care Act, aka the Affordable Care Act and “Obamacare”, which attempted to provide for universal health care part of American culture. It also passed the Health Care and Education Reconciliation Act, which amended parts of Obamacare and created the 3.8% Net Investment Income Tax surcharge for “wealth” Americans.
2012: Congress passed the American
Taxpayer Relief Act of 2012. All the
expiring tax cuts from the Economic Growth and Tax Relief Reconciliation Act of
2001 and the Jobs and Growth Tax Relief Reconciliation Act of 2003 were made
permanent, the exemption amount for the Alternative Minimum Tax (AMT) was
permanently indexed for inflation, the American Opportunity Credit was extended
through 2017, and certain “temporary” tax benefits were extended through 2013.
2015: Congress passed the
Protecting Americans from Tax Hikes Act of 2015, which made permanent many of
previous “temporary” tax benefits and temporarily extended others.
2017: Congress passed Public Law 115-97 - “An Act to provide for
reconciliation pursuant to titles II and V of the concurrent resolution on the
budget for fiscal year 2018”, also known as the GOP Tax Act and “The Tax Cuts
and Jobs Act”. This Act drastically
changed the United State Tax Code. For
2018 through 2025, or until new tax legislation is enacted, the Tax Cut and
Jobs Act will affect every income tax return filed – both business and
individual.
2019: In December Congress passed The Setting Every Community Up for
Retirement Enhancement Act, aka the SECURE Act, which changed the beginning
date for taking required minimum distributions (RMD) from retirement accounts
from age 70½ to age 72 and permitted all taxpayers with earned income to make
contributions to an IRA regardless of their age, both effective with tax year
2020.
2020 and 2021: Congress passed several acts providing temporary tax
benefits in an attempt to stimulate the economy in response to the COVID-19
pandemic, including issuing several “Economic Impact Payment” checks to many
Americans that were reconciled on the Form 1040.
1974: Congress created the deductible Individual Retirement Arrangement (IRA), known popularly as the Individual Retirement Account, for taxpayers not covered by employer pension plans.
1975: Low-income taxpayers were allowed to claim a refundable Earned Income Credit (EIC).
1979: Unemployment compensation was made partially taxable.
1981: Tax legislation reduced tax rates by 25% over 3 years, indexed tax brackets for inflation, and applied the same tax rates to earned and unearned income.
1984: For the first time recipients of Social Security and Railroad Retirement benefits were subject to tax on up to 50% of the benefits received, depending on the recipient's income.
1986: The largest revision of the Tax Code since 1954, the Tax Reform Act of 1986, was enacted. The law reduced the number of tax brackets from 14 to 2, decreased the maximum tax rate from 50% to 28%, repealed the dividend exclusion, Income Averaging, the itemized deduction for sales tax paid and the preferential treatment of long-term capital gains, introduced the passive activity rules, the Kiddie Tax, the deduction from gross income for health insurance premiums paid by self-employed individuals, and the 2% of AGI limitation on most miscellaneous itemized deductions, phased out the itemized deduction for personal (credit card, auto loan, etc.) interest, limited the deduction for business meals and entertainment to 80%, and replaced the additional personal exemption s for age 65 and blind with an increased standard deduction.
1987: For the first time taxpayers were required to list the Social Security number of dependent children, age 5 and over.
1990: The Revenue Reconciliation Act of 1990 added a third tax bracket (31%) and instituted the reduction of itemized deductions and phase-out of personal exemptions for high-income taxpayers.
1993: The Omnibus Budget Reconciliation Act added the 36% and 39.6% tax brackets, increased the maximum tax on Social Security benefits from 50% to 85%, and reduced the deduction for business meals and entertaining from 80% to 50%.
1998: In response to abusive treatment of taxpayers by the Internal Revenue Service, the IRS Reform and Restructuring Act of 1998 was enacted.
2001: Congress passed the Economic Growth and Tax Relief Reconciliation Act of 2001, the largest tax cut in over 20 years, with 85 major provisions. All provisions of this Act expired in 2011.
2003: Congress passed the Jobs and Growth Tax Relief Reconciliation Act of 2003 intended to stimulate the economy.
2010: Congress passed the Patient Protection and Affordable Care Act, aka the Affordable Care Act and “Obamacare”, which attempted to provide for universal health care part of American culture. It also passed the Health Care and Education Reconciliation Act, which amended parts of Obamacare and created the 3.8% Net Investment Income Tax surcharge for “wealth” Americans.
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