The Revenue Act of 1862 was passed by the United States Congress

United States Congress

The United States Congress is the bicameral legislature of the federal government of the United States, consisting of the Senate and the House of Representatives. The Congress meets in the United States Capitol in Washington, D.C....

 to help fund the American Civil War

American Civil War

The American Civil War was a civil war fought in the United States of America. In response to the election of Abraham Lincoln as President of the United States, 11 southern slave states declared their secession from the United States and formed the Confederate States of America ; the other 25...

. The Act was signed into law by President Abraham Lincoln

Abraham Lincoln

Abraham Lincoln was the 16th President of the United States, serving from March 1861 until his assassination in April 1865. He successfully led his country through a great constitutional, military and moral crisis – the American Civil War – preserving the Union, while ending slavery, and...

, introducing the first progressive rate

Progressive tax

A progressive tax is a tax by which the tax rate increases as the taxable base amount increases. "Progressive" describes a distribution effect on income or expenditure, referring to the way the rate progresses from low to high, where the average tax rate is less than the marginal tax rate...

 income tax to the country.

The office of the Commissioner of Internal Revenue

Commissioner of Internal Revenue

The Commissioner of Internal Revenue is the head of the Internal Revenue Service , a bureau within the United States Department of the Treasury.The office of Commissioner was created by Congress by the Revenue Act of 1862...

 was established, with the Act specifying that Federal income tax was a temporary measure that would terminate in "the year eighteen hundred and sixty-six").

Annual income of U.S. residents, to the extent it exceeded $600, was taxed at a 3% rate; those earning over $10,000 per year were taxed at a 5% rate. With respect to the income tax liability generated by the salaries of "officers, or payments to persons in the civil, military, naval, or other employment or service of the United States, including senators and representatives and delegates in Congress", the law also imposed a duty on paymasters to deduct and withhold the income tax, and to send the withheld tax to the Commissioner of Internal Revenue.

This Act repealed the flat rate income tax that had been established by the Revenue Act

Revenue Act of 1861

The Revenue Act of 1861, formally cited as , included the first U.S. Federal income tax statute . The Act, motivated by the need to fund the Civil War , imposed an income tax to be "levied, collected, and paid, upon the annual income of every person residing in the United States, whether such...

 of the previous year.

To assure timely collection, income tax was "withheld at the source

Tax withholding in the United States

Three key types of withholding tax are imposed at various levels in the United States:*Wage withholding taxes,*Withholding tax on payments to foreign persons, and*Backup withholding on dividends and interest....

" by the employer.http://www.ustreas.gov/education/fact-sheets/taxes/ustax.shtml

Incomes Adjusted for Inflation - Bureau of Labor Statistics (BLS)

Adjusted for inflation by the average Consumer Price Index (CPI):

1862 dollars	2008 dollars
$600	$13,259
$10,000	$220,993