The United States income tax was first introduced in 1861 as a way to fund the Civil War effort. It was the first federal income tax law. The Revenue Act of 1861 had the stated purpose of providing for the “common Defense and general Welfare” and the “support of the Government.” The existing tariffs on imported goods and excise taxes on products such as Alcohol and tobacco were not sufficient to fund the Civil War. A new revenue source was needed for the war which lasted from April 12, 1861 to May 26, 1865.

The Revenue Act was supported primarily by the republicans at the time with writings showing that it was to prevent needing to rely on borrowing from foreign governments. The act was only applied to northern states. The Bureau of Internal Revenue was responsible for collecting the tax, issuing licenses and permits, and enforcing compliance. They created the regulations and provided instruction guides for the collection of the tax.

The Revenue Act imposed a 3% income tax on incomes $800 to $10,000 and 5% on incomes about $10,000. Taxes were paid and collected quarterly. The tax applied to both individuals and business applying to all forms of income including wages, salaries, business profits, and investments. There was discussion about double taxation on individuals who owned businesses though that was overcome and the Act become law. Tax was collected on a quarterly basis

There were several exemptions from taxation which are worthy of noting:

1. Income from certain types of federal, state, and municipal bonds
2. $600 exemption for single individuals and $1,200 for married couples
3. Income from property, such as rent, was exempted
4. Income from professionals such as doctors and lawyers was exempted

Individuals and businesses were required to file a return with the Bureau of Internal Revenue on a quarterly basis. The return included information such as the individual’s or business’s income, exemptions, and the amount of tax owed. The return was called a “list” and it was required to be sworn to and signed by the taxpayer.

The Bureau of Internal Revenue issued receipts to taxpayers when their taxes were paid to serve as proof of payment. The Bureau also had the authority to seize property and assets for non-payment and issue fines or even imprisonment for those who failed to pay their taxes.

The Revenue Act of 1861 was repealed in 1872 with the War Revenue Act of 1864. The Revenue act was seen as a temporary funding measure for the Civil War. The decrease in government funding and several other issues that are attributed to the “Panic of 1873” and several years of economic depression to follow would help make the case for the next time an Income tax was proposed with the 16th amendment. More on that in the next article.