Income Tax (United States)

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The income tax in the United States is a tax independently, some by the federal government states and individual municipalities is levied on income of various kinds. Due to a large number of political and constitutional conflicts, the federal income tax was not introduced until 1913, shortly after the 16th Amendment to the United States Constitution , and states and municipalities only developed separate income tax systems as a result. Debates about the constitutionality of income tax have led to sometimes very violent legal and political disputes.


President Abraham Lincoln introduced the income tax with Congress in 1861 .

The history of income tax began in the United States in the 19th century when it was introduced by Congress to pay the cost of warfare during the Civil War . The tax was laid down in the Revenue Act of 1861 and at the time provided for taxation of all income over $ 800 at a rate of three percent. In the following year, the tax rates were increased with the Revenue Act of 1862 and made progressive for the first time : Income between 800 and 10,000 US dollars were taxed at three percent, the portion of income above five percent. Another tax increase took place with the Revenue Act of 1864 , according to which a third tax tier was set up and the tax rates were set at five, ten and fifteen percent respectively. After the war ended in 1865, income tax was lifted in 1872.

The next income tax was in 1894 with the Wilson-Gorman Tariff Act introduced, but the following year by the Supreme Court in the decision v Pollock. Farmers' Loan & Trust Co. Declared Unconstitutional. The reasoning of the court was that taxes on rental income, loan interest and dividends were direct taxes within the meaning of the first article of the Constitution and therefore that their collection in the states should be carried out in proportion to the population.

The impracticality of proportional tax collection made no further attempts to introduce a general income tax at the federal level until 1909. That year, Congress passed the 16th Amendment to the Constitution that would no longer classify income tax as a direct tax. The text read:

"The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration."

- 16th Amendment to the Constitution of the United States

"Congress has the right to set and collect taxes on income from any source without having to apportion it proportionally to the individual states or be bound by an estimate or census."

- 16th Amendment to the United States Constitution

This made it possible for the federal government to levy a general income tax without being bound by the distribution proportionality established by the Supreme Court. After the constitutional amendment was ratified by the necessary number of states in 1913, Congress passed a new income tax law with two tax brackets of one and seven percent.

Entry and Top Tax Rates in the United States since 1913

In order to finance the First World War , the top tax rate was increased to 77% in 1918, but reduced again to 58% in 1922 and to 25% in 1924. In response to the Great Depression , the rate was increased to 63% in 1932 and then continuously increased to its maximum of 94% for incomes over US $ 200,000 in the course of World War II . The top tax rate remained above 90% until 1964, but was then lowered to 70%. Under the government of Republican President Ronald Reagan , who campaigned with tax cuts and a comprehensive tax reform in 1980 , the top rate was reduced to 50% in 1982 and finally to 28% in 1988. With the Omnibus Budget Reconciliation Act of 1990 , the rate was increased slightly again under President George Bush to 31% in order to compensate for the budget deficit. He broke his oft-quoted campaign promises , which he in the presidential election in 1992 the challenger to the Democrats , Bill Clinton was defeated. In order to further reduce the budget deficit, two further tax brackets of 36% and 39.6% were introduced under Clinton with the Omnibus Budget Reconciliation Act of 1993 . In connection with the economic boom of the New Economy from 1998 to 2001, this led to a budget surplus . After George W. Bush won the election in the 2000 election campaign with the promise of lower taxes, the top rate was reduced to 35%.

Effective January 1, 2013, the top tax rate for the portion of income over $ 450,000 was increased from 35% to 39.6%. Likewise, expiring tax cuts have been extended for 98 percent of Americans. Negotiations lasted weeks as the US debt ceiling and austerity measures to reduce debt were also discussed. US President Barack Obama originally wanted the tax increase for incomes of more than 250,000 US dollars, but this met with strong resistance from the Republicans, but also from some Democrats. The tax hike affects the richest 2 percent of Americans. The compromise was reached at the last minute and prevents the severe weakening of the US economy that would have occurred if tax hikes for the broad masses and austerity measures.

Federal income tax

The federal government levies a progressive income tax on “all income from whatever source” for both natural persons and profit-oriented companies . Since its inception by the Revenue Act of 1913 , tax rates and their tax base have been changed repeatedly to suit the political and economic realities of the United States.

Natural people

Average and marginal income tax rate in the United States in 2013

Since the passage of the Jobs and Growth Tax Relief Reconciliation Act of 2003 , the marginal tax rates for natural persons have risen in stages from 10% to 39.6%, depending on the tax base. The tier rates are only collected for the associated income range. For example, if you have taxable income of $ 20,000, the first $ 9,275 will be taxed at 10% (10% × $ 9,275 = $ 927.50) and the remainder at 15% (15% × $ 10,725 = $ 1,608.75) in 2016 . The assessment basis is basically based on the total amount of gross income generated in a calendar year. This includes, in particular, wages and salaries, pensions, maintenance, tips, fees, commissions and bonuses as well as interest and dividend payments. This also includes rental income, royalties, and lottery and other gambling prizes. Profits from long-term investments are taxed at lower rates than other incomes; profits from long-term real estate transactions, for example, only at 10 to 25 percent.

U.S. federal tax marginal rates for 2017
tax rate
Taxable Income (US Dollars Per Year)
Individual Married couple (common disposition) or widowed Spouse (separate assessment) Head of household
10% 0-9,325 0-18,650 0-9,325 0-13,350
15% 9,326-37,950 18,651 - 75,900 9,326-37,950 13,351-50,800
25% 37,951 - 91,900 75.901 - 153.100 37,951 - 76,550 50,801-131,200
28% 91.901 - 191.650 153.101-233.350 76,551 - 116,675 131,201-212,500
33% 191,651 - 416,700 233,351 - 416,700 116,676 - 208,350 212,501 - 416,700
35% 416.701 - 418.400 416,701 - 470,700 208,351-235,350 416,701 - 444,550
39.6% from 418,401 from 470.701 from 235.351 from 444.501

Certain types of income that Congress considers non-taxable are deducted from gross income. These include, for example, employer contributions to health insurance, interest income on government bonds and income from life insurance as a result of the death of the insured.

From the gross income of some items arising after deducting such payments to health and retirement savings accounts, moving expenses, alimony payments and interest on student loans adjusted gross income ( english adjusted gross income , AGI ).

Similar to income-related expenses and pension expenses in German tax law, additional deductions are possible for federal income tax in the United States, both as a lump sum and listed individually. This includes health care expenses if they exceed 7.5% of gross adjusted income, state and community income and property tax payments, mortgage interest, donations, losses due to death or theft, workwear, unpaid expenses within an employment relationship, tax advice costs, Expenditures for further training as well as gambling losses up to the total amount of gambling winnings. In addition to these individual expenses, an additional US $ 4,050 (2016) deduction per dependent is possible. The taxpayer himself, his spouse and all children and relatives living in the household who have little or no income themselves are counted as dependent persons. The amount determined then serves as the assessment basis for income tax. The exact amounts are recalculated every year with the help of data on average hourly wages, monthly salaries, inflation, etc. US President Obama wanted to introduce the top tax rate for incomes of more than US $ 250,001 for singles, but had to make a compromise of over 400,000 US dollars satisfied.


Tax rates for for-profit companies (2006)
Taxable Income
(US Dollars Per Year)
Tax rate
0- 00.050,000 15th
50.001- 00.075.000 25th
75,001-10,000,000 34
over 10,000,000 35

Profit-oriented companies are subject to corporation tax. The assessment basis is based on the company's worldwide sales, reduced by deductions for “ordinary and necessary business expenses”. This includes in particular all personnel costs including payments for health and pension insurance, materials, tools, repairs, research, advertising, rent payments, insurance premiums and interest on loans. Larger purchases have to be written off over several years . The tax payable is reduced by special tax credits for increased research, investments in social housing and the employment of certain particularly needy people.

The existence of two separate income tax systems gives rise to the possibility of double taxation. Firstly, corporate profits are taxed in accordance with the rules for legal entities, but then have to be declared and taxed again as dividend payments by natural taxpayers. In order to reduce the importance of this double taxation, the Congress created a new type of company in 1986, the S corporation , in which all company profits are proportionally divided among the owners of the company and taxed individually there.

The Tax Cuts and Jobs Act of 2017 replaced the tiered corporation tax of up to 35% in the US with a uniform corporation tax of 21%.

Alternative minimum tax

The Tax Reform Act of 1969 created a separate tax assessment system known as Alternative Minimum Tax (AMT) in addition to traditional income tax , which was intended to reduce the possibility of tax loopholes . The reason for the law at the time was 155 households with incomes over 200,000 US dollars, which in 1966 did not have to pay income tax through extensive tax arrangements. The law provides for an alternative method of calculating taxable income with significantly fewer tax deductions than are possible with traditional income tax. Taxpayers are obliged to calculate their tax liability according to both systems. If the AMT tax liability is higher than the tax liability under the traditional system, then the higher tax amount must be paid.

The AMT features a tiered tariff with only two tiers of tax: 26% for incomes up to $ 75,000 and 28% for incomes above. The flat rate for advertising costs and the individual allowance per dependent are not available at AMT, nor are tax payments to states, municipalities and foreign countries, which means double taxation occurs. Unrealized gains on options must be taxed as income.

In contrast to the level limits for income tax, the limit values ​​for the AMT are not adjusted due to inflation. Therefore, due to the general annual price increases, more and more taxpayers came within the scope of the AMT. In the fiscal year 2003, 2.5 million households were affected. In order to reduce the additional tax burden caused by the AMT, the system has been subject to repeated minor legal changes for several years. A complete abolition of the system is not planned, as the resulting shortfall in income is now estimated at an average of at least 80 billion US dollars per year. It would therefore be more beneficial for the state budget to abolish normal income tax in favor of the alternative tax.


Income tax is levied on the worldwide income of all American citizens, all non-US citizens with permanent US green card holders, and all US- based for-profit corporations. The United States has entered into a number of double taxation treaties to alleviate any double taxation on income earned abroad . The Internal Revenue Service (IRS), as a division of the Treasury, is responsible for setting and collecting federal income tax .

Income tax for employees is deducted from the pay due in the course of the year as wages and salaries and transferred by the employer to the IRS. Companies, including the self-employed, are obliged to estimate their tax liability and transfer it quarterly. Clearly assigned nine-digit tax numbers are used to offset these prepayments , which are referred to as the social security number for natural persons and as the employer identification number for companies.

All taxable persons are legally obliged to submit an annual tax return by April 15 of the following year. The tax return contains a list of gross income, all possible deductions and credits and an estimate of the actual tax liability. Taxpayers can submit their tax return either by post or electronically. Receipts do not have to be enclosed with the submission, but must be kept for at least five years for verification purposes. The IRS does not issue a tax assessment because it is a self- assessment procedure . If the tax amounts paid in advance exceed the actual tax liability, the difference will be reimbursed by the IRS, otherwise an additional payment is required. A review of the tax returns submitted is seldom done. According to the IRS, only 0.77% of all tax returns from individuals and 0.019% of all returns from for-profit companies were audited in 2004.

Occurrence and use

Income in the federal budget (2006)
tax Revenue
(Billion US Dollars)
Income tax 1,397.8 58.1
social insurance 837.8 34.8
Excise taxes 74.0 3.1
Inheritance and gift taxes 27.9 1.2
Import duties 24.8 1.0
Others 45.0 1.9
total 2,407.3 100

Income tax has become the most important source of income for the federal budget. In the 2006 fiscal year, income tax accounted for 58% of total federal income. Of this, almost three quarters were natural persons and a quarter were for profit-oriented companies. For comparison, in the fiscal year 1934 the share was only 26.5%, the largest source of income was consumption taxes with 45.8%.

Income from income tax and other taxes is used to offset annual federal expenses. These include, in particular, benefits from the Social Security pension insurance (20.9%), unemployment insurance and social assistance (13.8%), Medicare (13.3%) and Medicaid (10.3%) health insurances and the defense budget (17, 17%).

State and local income tax

Map of the states that do not levy household income tax
  • no taxes
  • Tax only on interest and dividends
  • In addition to the federal government, all states , with the exception of Alaska , Florida , Nevada , South Dakota , Texas , Washington, and Wyoming , have their own tax on household income. In Tennessee and New Hampshire , however, only income from interest and dividends is taxed. For-profit corporations' earnings are taxed in all states except South Dakota, Texas, Nevada, Washington, and Wyoming. In addition to the states, some municipalities and counties, such as New York City , Philadelphia, and Cincinnati, also have separate income taxes that are in addition to federal and state taxes.

    Tax rates

    The marginal tax rates set vary from state to state. The input tax rates range from 0.36% ( Iowa ) to 5.35% ( Minnesota ). The highest top tax rate is 11% in Hawaii and the lowest is 4.54% in Arizona . With a few exceptions (such as Illinois and Utah), income tax in most states is progressive. In the municipalities, the tax rates are lower and amount to up to 4% there.

    Income tax amounts paid to the state and local government are in most cases eligible for federal tax returns. This is to prevent excessive taxation and avoid hardship cases that arise from the different tax laws. For example, the cumulative top tax rate in Texas is only 35% due to the lack of local income tax, but in New York City with its own tax levied by the state and city it is a total of 43.97%. This possibility of deduction granted by the federal government is also controversial because it indirectly subsidizes the budget of the respective federal state or the respective municipality from federal tax revenues.

    Come up

    Income tax income is a significant portion of total tax revenue for some states such as Michigan (98.6%), Oregon (93.2%), and New York (76.0%). In other states such as Florida (8.8 %), Tennessee (16.9%) and Alaska (17.9%), income tax plays a significantly smaller role, where other sources of income, in particular sales tax and property tax , are used to cover government spending. Of the total revenue of all states in 2006 of $ 621 billion, total income tax revenue was 47.2%.

    Tax protesters

    Due to the lengthy political genesis of income tax in the United States, there is still a significant group of taxpayers who, as tax protesters, reject a tax liability under the income tax laws. In their attempts to avoid tax collection altogether, they use a variety of arguments that have not yet been recognized by any court. In the Cheek v. The United States Supreme Court declared that violating tax laws, directly attributable to the lack of comprehensibility or complexity of the provisions, is acceptable as an effective defense against allegations of tax evasion . However, the Court also makes it clear that refusal to file a tax return or pay taxes on the basis of a personal belief that the tax laws are illegal or unconstitutional cannot be used in defense in such cases. To counter the rise in legal arguments based on tax refusals, Congress passed legislation in 2006 that penalizes the use of some of these arguments in personal tax returns with fines of up to US $ 5,000.


    Some tax evaders argue that the income tax system is based on voluntary work. It follows that the payment of the tax liability is also voluntary. The Tenth Federal Court of Appeals rejected this argument in the 1986 United States v. Tedder back on the grounds that, in principle, every taxpayer can determine his tax liability independently based on his actual economic income and expenses, but the tax authorities can compulsorily set and collect the tax owed according to the Income Tax Act. In the view of the court, participation in the federal income tax system is therefore not voluntary.

    Competence of the tax authorities

    On the constitutional exclusive jurisdiction of the Congress for directly federal areas , such as the Federal District District of Columbia , which consists of the federal capital Washington , builds another argument of the tax evaders. It is asserted that with the definition of jurisdiction in the constitution, the territorial scope of federal laws extends exclusively to the federal district, so that Congress cannot enact any laws that are valid outside the district. The proponents of this line of argument also refer to decisions of the Supreme Court which called a limitation of the scope of federal laws, but which did not deal materially with tax legislation. The jurisdiction argument was made in 1989 by the Illinois Federal District Court in the United States v. Sato dismissed as irrelevant.

    Ratification of the 16th Amendment

    One argument often used is the claim that the 16th Amendment, which allows Congress to levy income tax regardless of population distribution, was not constitutionally passed. Under Article V of the United States Constitution, any amendment to the Constitution must be ratified by the parliaments of at least three-fourths of the state. When the 16th Amendment was passed, the country consisted of 48 states, so 36 parliaments should have approved the new text. The constitutional argument is that the text was not passed in exactly the same form by all parliaments due to spelling and punctuation errors, the ratifications did not exactly correspond to the requirements of the respective local constitution, some governors did not sign the resolution and in In some cases in plenary the current rules of procedure had been disregarded. Because of these circumstances, the 16th Amendment should not be considered in force and Congress had no power to collect general income tax. However, the Seventh Federal Court of Appeals already stated in the United States v. Thomas 1986 that these arguments are worthless and that the constitutionality of the 16th Amendment cannot be questioned. Subsequent court decisions at other courts of appeal were made in the same tenor.

    conspiracy theories

    A fourth class of arguments against income tax consists of the claim that the tax is the result of a large-scale conspiracy that pervades almost every constitutional body in the United States. Specific substantive aspects of this claim include that the United States never really became independent from the Kingdom of Great Britain or that the United States ceased to exist as a state after the Civil War , the First World War or the Great Depression , and since then only the appearance of one Constitutional legitimation would exist (similar to some theories on the legal situation of the German Reich after 1945 ). It is also alleged that the tax authorities acted very selectively and only prosecuted poor and ignorant citizens for tax evasion, but that settlements are always negotiated with well-off and educated suspects . It is also claimed that the gold border on the American flag, which hangs in every courtroom, symbolizes that the court is currently working according to the principles of the law of the sea and thus cannot hear tax cases, or that the gold border serves as a symbol of illegal martial law . Finally, the common use of capital letters in names in American law is cited as evidence of fraud by the court, because the names of the parties in the respective birth certificates are not in capital letters and therefore the case cannot refer to them as a person. However, none of these arguments has been recognized by a court in the United States as an effective defense against allegations of tax evasion.


    • Bill Benson and MJ Beckman: The Law That Never Was . Constitutional Research Assoc., 1985. (English).
    • Richard J. Joseph: The Origins of the American Income Tax: The Revenue Act of 1894 and Its Aftermath . Syracuse University Press, 2004, ISBN 978-0-8156-3021-0 . (English).
    • Joel Slemrod and Jon Bakija: Taxing Ourselves, 3rd Edition: A Citizen's Guide to the Debate over Taxes . The MIT Press, 2004, ISBN 978-0-262-69302-8 . (English).
    • Robert Stanley, Dimensions of Law in the Service of Order: Origins of the Federal Income Tax, 1861-1913 . Oxford University Press, 1993, ISBN 978-0-19-505848-2 . (English).

    Web links


    1. "No capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or Enumeration in before directed to be taken." Article I, Section 9 of the United States Constitution
    2. ^ Melville W. Fuller : POLLOCK v. FARMERS 'LOAN & TRUST CO., 158 US 601 (1895). April 8, 1895, accessed December 30, 2007 .
    3. Obama achieves compromise in budget dispute
    4. "all income from whatever source derived" 26 USC § 61 (a)
    5. a b US Income Tax Rates for 2017 (English)
    6. 26 USC § 106
    7. 26 USC § 103
    8. 26 USC § 101
    9. 26 USC § 62
    10. List of deductible business expenses
    11. 26 USC § 151
    12. “ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business”, 26 USC § 162
    13. ^ The Corporate Income Tax, Business Roundtable (1997) ( Memento of September 28, 2007 in the Internet Archive )
    14. Jonathan Weisman: Falling Into Alternative Minimum Trouble. Washington Post , accessed December 31, 2007 .
    15. ^ Aviva Aron-Dine: Myths and Realities about the Alternative Minimum Tax. Center on Budgetary and Policy Priorities, February 14, 2007, accessed December 31, 2007 .
    16. Jonathan Weisman: Falling Into Alternative Minimum Trouble. Washington Post , accessed December 31, 2007 .
    17. ↑ Obligations to provide evidence of Section 50d (8) EStG for tax-free wages on the test bench. (No longer available online.) Institute for Knowledge in Business (IWW), archived from the original on March 4, 2016 ; Retrieved July 18, 2014 . Info: The archive link was inserted automatically and has not yet been checked. Please check the original and archive link according to the instructions and then remove this notice. @1@ 2Template: Webachiv / IABot /
    18. US tax law. aczento, accessed July 18, 2014 .
    19. Audits of Individual Income Tax Returns. Syracuse University - Transactional Records Access Clearinghouse, accessed December 31, 2007 .
    20. ^ Audits of Business Income and Other Taxpayers. Syracuse University - Transactional Records Access Clearinghouse, accessed December 31, 2007 .
    21. Summary Tables, Budget of the United States Government, Fiscal Year 2008. (PDF; 396 kB) (No longer available online.) Office of Management and Budget , archived from the original on January 14, 2009 ; accessed on December 31, 2008 . Info: The archive link was inserted automatically and has not yet been checked. Please check the original and archive link according to the instructions and then remove this notice. @1@ 2Template: Webachiv / IABot /
    22. Historical Tables, Budget of the United States Government, Fiscal Year 2008. (PDF; 2.6 MB) (No longer available online.) Office of Management and Budget, archived from the original on September 30, 2007 ; accessed on December 31, 2007 . Info: The archive link was inserted automatically and has not yet been checked. Please check the original and archive link according to the instructions and then remove this notice. @1@ 2Template: Webachiv / IABot /
    23. STATE INDIVIDUAL INCOME TAXES ( Memento of the original from April 14, 2008 in the Internet Archive ) Info: The archive link was inserted automatically and has not yet been checked. Please check the original and archive link according to the instructions and then remove this notice. (PDF; 82 kB)  @1@ 2Template: Webachiv / IABot /
    24. ^ New York Income Tax
    25. ^ The Fiscal Survey of the States. (PDF; 665 kB) National Governors Association - National Association of Budget Officers, archived from the original on July 4, 2008 ; accessed on December 31, 2007 .
    26. ^ William J. Benson and Martin J. "Red" Beckman: The Law That Never Was: The fraud of the 16th Amendment and personal income tax . Constitutional Research Assoc, South Holland, Illinois 1985.
    This version was added to the list of articles worth reading on January 8, 2008 .