After the holidays pass, the ball drops and then suddenly it’s upon us: taxes. They’ve shaped our country from the moment people in powdered wigs started arguing about tea; and they continue to influence how we live, work and plan to this day. As we head into a new year (and a new tax season), let’s look at how the American tax system evolved into the modern system that has us all calling our accountants every January.
The 1700s: Where the Tax Story Really Begins
After the Seven Years’ War, Britain had a massive bill to pay. To cover some of those costs, Parliament started taxing the American colonies more directly. The issue wasn’t that the taxes were outrageously high, it was the principle behind them: the colonies didn’t have anyone in Parliament speaking or voting on their behalf. In other words, they were being taxed by a government they had no say in.
So, the colonist pushed back. From protests to boycotts, they made it clear they weren’t going to accept new taxes without representation. Then came the event everyone remembers from history class: The Boston Tea Party in 1773, when colonists dumped taxed tea into the harbor to send a clear message about their stance on taxation without representation.
Although some taxes were eventually repealed, the trust between Britain and the colonies was already gone. This tax dispute became one of the major catalysts pushing the colonies towards independence and shaped the way Americans have viewed taxation and representation ever since.
The 1800s: The First Income Tax Makes an Appearance
Once the U.S. became its own nation, most of federal revenue came from tariffs. For a while, that system worked well enough for a growing country. Then the Civil War hit. The government needed more money, and fast. That’s when Congress introduced the first federal income tax in 1861 to help fund the war. It wasn’t permanent, and it disappeared shortly after the conflict ended, but it planted a seed for future income tax systems.
For the rest of the century, the government relied mainly on tariffs and excise taxes. But the debate over how to fund a modern and expanding country was constant. This set the stage for a major shift in the early 1900s.
The 1900s: The Modern Tax System Takes Shape
Everything changed in 1913 with the ratification of the 16th Amendment, which gave Congress the clear authority to levy a federal income tax. This is basically the moment our current tax system was born. From there, things moved quickly.
- World Wars I and II dramatically expanded federal tax collection. Payroll withholding was introduced and taxes came out of paychecks automatically. This is the system we still use today.
- Social Security was established in 1935, bringing payroll taxes into the picture to fund retirement benefits.
- The Bureau of Internal Revenue eventually became the Internal Revenue Service (IRS), taking on the job of enforcing and administering the tax laws. This name change was formally adopted in 1953.
The tax code grew more complex as the economy expanded, and the country added new programs and policies. By the late 20th century, tax season was a familiar part of American life…but how we filed was about to change again.
The Late 1900s to Today: From Paper Returns to E-Filing
With the rise of computers, tax filing entered the digital age. By the late 1960s, the IRS begun using computers to process returns, laying the groundwork for the digital systems we rely on today. Electronic filing arrived in the 1980s.
By the 1990s, taxpayers were using software instead of paper forms to prepare and submit returns. Today, e-filing is the norm. Refunds arrive by direct deposit, signatures are electronic and even complex returns can be handled securely online. Modern filing is faster and more accessible than ever, but expert guidance still matters, especially with evolving tax laws and increasingly digital financial lives.
Federal tax law has also gone through major updates from the Tax Cuts and Jobs Act (TCJA) of 2017, to the One Big Beautiful Bill Act (OBBBA) in 2025, which made many TCJA provisions permanent.
Final Thoughts
Taxes have been a part of America’s story since the very beginning. As the New Year (and tax season) approaches, we’re here to make the process smoother…and less stressful. Whether you’re planning ahead, navigating changes or filing a return, Murtha & Flischel is here to help you make sense of it all.
Here’s to a steady finish of 2025, and a tax season that feels far more manageable with the right support by your side. We look forward to supporting you again this coming season.