The United States federal government levies taxes on the income of its citizens and legal residents. The Internal Revenue Service (IRS) is the agency responsible for collecting these taxes.
Federal income tax rates have changed several times since 1913, when the modern income tax system was first introduced. The following is a brief history of how these rates have changed over the past century.
1913 – 1921:
The first income tax rates were introduced in 1913, when the modern income tax system was first established. The rates ranged from 1% to 7%, depending on the amount of income earned. These rates remained unchanged until 1918, when they were increased to help fund the costs of World War I.
After the war, the rates were lowered again and remained relatively stable until 1921, when they were increased to help pay for the costs of World War II.
1922 – 1931:
In 1922, the income tax rates were lowered once again, with the top rate falling to 58%. These rates remained in place until 1929, when they were increased to help fund the Great Depression.
The rates were increased again in 1931, with the top rate rising to 63%.
1932 – 1981:
The income tax rates remained relatively stable from 1932 to 1981, with the top rate falling to 50% in 1964 and rising to 70% in 1981.
1982 – 1987:
In 1982, the income tax rates were lowered for the first time in nearly 50 years, with the top rate falling to 50%. These rates remained in place until 1986, when they were increased again to help fund the costs of the Reagan administration.
The top rate was increased to 38.5% in 1987, where it remained until the Tax Reform Act of 1986 was enacted.
1988 – present:
The Tax Reform Act of 1986 lowered the top income tax rate to 28%. This rate remained in effect until 1990, when it was increased to 31%. In 1993, the top rate was raised to 39.6%, where it remained until 2001.
In 2001, the George W. Bush administration lowered the top income tax rate to 35%. This rate remained in effect until 2013, when it was increased to 39.6% under the Obama administration.
The Trump administration lowered the top income tax rate again in 2018, though it is set to return to its previous level in 2026.
As you can see, the federal income tax rates have fluctuated quite a bit over the past century. They are currently at their lowest level since 1931, but are scheduled to increase again in 2026.
What this Means for You?
The changes in the federal income tax rates over the past century have had a significant impact on taxpayers. If you are subject to income taxes, it is important to understand how these changes may affect you.
If you have any questions about your taxes, or if you need help preparing your return, please contact a qualified tax professional.
What do you think about the current state of federal income taxes? Do you think they are too high, too low, or just right? Let us know in the comments below.