Federal Tax Brackets: What They Are and History

What Are Federal Tax Brackets?

The federal tax brackets are income ranges the Internal Revenue Service (IRS) uses to determine the percentage of tax to be paid by individuals, corporations, and trusts. The brackets are adjusted for inflation annually.

The U.S. has a progressive tax system, meaning that the tax percentage rises with the income of the taxpayer.

Understanding Federal Tax Brackets

Federal tax brackets are progressive, meaning that the higher your income, the higher your tax rate. This does not always translate into paying more in tax dollars, because of the deductions and credits that can be applied against the tax that you owe.

When the federal tax brackets were created in 1913, the goal was to raise money for the nation's defense. In the subsequent decades, special interest groups lobbied for more and more deductions, particularly for businesses. By 2018, 91 corporations, including 60 of the Fortune 500 companies, paid nothing.

Tax Code Overhaul

The most recent extensive overhaul of the tax code came at the end of 2017 when the Tax Cuts and Jobs Act (TCJA) was signed by then-President Donald Trump.

The TCJA permanently reduced the corporate tax rate while reducing individual rates only temporarily, until 2025. This was largely due to concerns about the debt these new tax reductions would add to the already large U.S. debt total.

In fact, the national debt has increased, from about $25.86 trillion in 2017 to about $34.09 in 2024. That is due to more than tax cuts, as it reflects unprecedented federal spending to cope with the effects of the COVID-19 pandemic starting in 2020.

With the 2017 tax overhaul, high earners saw the largest reduction in taxation. Low-wage earners, who also had their taxes cut, could conceivably pay more when—and if—the individual tax changes expire as planned in 2025.

History of the Federal Tax Brackets

The 16th Amendment was ratified in 1913, and the federal tax bracket was born. In 1913, the top tax bracket was 1% on incomes above $3,000, with a 6% surcharge on incomes above $500,000.

It didn’t take long for the rate to rise dramatically. By 1918, as the true cost of World War I became evident, the top tax rate reached as high as 77%. Rates came down again during the prosperous 1920s, only to rise during the Great Depression.

The decision to raise tax rates during a depression became an example of what not to do during difficult times and was cited frequently during the debate over the Troubled Asset Relief Program (TARP) at the start of the 2008-2009 Great Recession.

By the end of World War II, the top tax bracket reached 94%. The rate remained high in subsequent years, averaging around 70%.

Rates have been coming down ever since, starting in the 1980s Reagan administration. As of the 2025 tax year, there are seven federal tax brackets: 10%, 12%, 22%, 24%, 32%, 35%, and 37%.

It is probably no coincidence that the U.S. debt has ballooned during the modern era, as the country has engaged in several wars while lowering tax rates instead of raising them, as was done during previous wars.

The Bottom Line

The U.S. government has collected income taxes from its citizens periodically since 1861, when it imposed a flat 3% tax on incomes of $800 or more to fund the Civil War. But it was only in 1913 that the modern income tax system was put in place, complete with tax brackets that imposed progressively higher rates on higher earners.

The U.S. tax system has undergone countless revisions since then, but it's safe to say the system isn't going away soon.