A look at Federal and State Income Taxes

Ah, April 15th—the day Americans collectively gulp, sharpen their pencils (or log into their tax software), and prepare to pay homage to the IRS. While Tax Day may not be everyone’s favorite holiday, it’s a pivotal moment each year that connects us to over a century of financial, legal, and even political history.

In this post, we’ll explore the origin of income taxes, the differences between federal and Pennsylvania state taxes, and how the whole system evolved. Along the way, we’ll add some fun facts and light commentary to keep things informative and digestible—because, let’s be honest, taxes don’t have to be boring.

A Brief History of Income Taxes:

Ancient Roots of Taxation

Taxes have existed since ancient civilizations—think Mesopotamia and Egypt—where citizens paid in grain, labor, and livestock. Fun fact: In ancient Rome, the "decuma" was a 10% income tax, paid in kind, usually to fund war campaigns. So, the next time you write a check to Uncle Sam, be thankful you’re not delivering goats.

The Civil War & America’s First Income Tax

The U.S. government introduced the first federal income tax in 1861, during the Civil War, to fund the Union’s military expenses. It was a temporary measure—3% on incomes over $800 (roughly $26,000 today). This law was repealed in 1872, once the war was over and financial pressure eased.

The 16th Amendment and the Birth of Modern Income Tax

Enter the year 1913—the same year the zipper was invented and Woodrow Wilson became president. That’s when the 16th Amendment was ratified, giving Congress the explicit power to tax income without apportioning it among the states.

Thus, the modern federal income tax was born. The first Form 1040 was one page long, with a 1% tax rate on incomes over $3,000 and up to 7% on incomes over $500,000. Today’s forms are…slightly more complicated.

Federal Income Tax: How It Works

The Internal Revenue Service (IRS), founded in 1862 and modernized with the 1913 tax law, administers the federal tax code.

Key Features of the Federal Income Tax System:

• Progressive Tax Structure: The more you earn, the higher your tax rate.

• Filing Status Options: Single, Married Filing Jointly, Head of Household, etc.

• Deductions and Credits: Standard deduction, itemized deductions, tax credits (e.g., Child Tax Credit, Education Credit).

• Income Types: Wages, interest, dividends, capital gains, and even crypto gains.

• Forms and Filing: The 1040 is the centerpiece, supported by a sea of Schedules and Forms. (You haven’t lived until you’ve filled out Schedule C.)

Pennsylvania State Income Tax: Simpler, Flatter, Still Important

Pennsylvania has one of the most straightforward income tax systems in the country.

Key Features of PA Income Tax:

• Flat Rate: 3.07% on taxable income, regardless of income level.

• No Standard Deduction or Personal Exemptions: Unlike the federal system.

• Taxable Income Includes:

  • Wages and salaries

  • Interest and dividends

  • Business and rental income

  • Certain gambling and lottery winnings

Local Earned Income Tax (EIT)

If you live or work in Pennsylvania, chances are you pay an additional local earned income tax, often between 1% and 2%, depending on your municipality.

✔ Fun Fact: Some townships collect their own taxes with forms mailed directly to residents—not through the state. Welcome to the joys of local government!

A Light Touch on Payroll Taxes (Because They're Important Too)

When we talk about income taxes, we can’t ignore payroll taxes. Every time you get a paycheck, your employer withholds:

• Social Security Tax: 6.2% (matched by employer)

• Medicare Tax: 1.45% (also matched)

• Additional Medicare Tax: 0.9% for high earners

These taxes fund retirement and healthcare benefits—not technically part of the income tax system, but definitely a deduction you’ll notice.

Tax Day Trivia: A Few Things You Didn't Know

• Why April 15? The deadline was originally March 1, then March 15, and finally moved to April 15 in 1955 to give the IRS more time to process returns.

• Form 1040 Name Origin: Nobody really knows, but one theory suggests it was just the next number in the series.

• Al Capone's Conviction: Not for bootlegging or murder—but for tax evasion in 1931.

• Most Common Mistake: Incorrect Social Security numbers or forgetting to sign your return.

What Happens If You Miss the Deadline?

If you’re reading this after April 15 with a sense of panic—don’t worry, you're not alone.

Late Filing Penalties:

• Failure to File: 5% of unpaid taxes per month (up to 25%).

• Failure to Pay: 0.5% per month on unpaid taxes.

✔ Pro Tip: If you can’t file on time, request an extension (Form 4868). This gives you until October 15 to file—though not to pay.

Digital Age Filing: Where Technology Meets Taxation

Remember doing taxes with pencil and paper? Some still do, but most people now file electronically using tax software or with the help of professionals.

The IRS and PA Department of Revenue both support e-filing:

• IRS Free File for qualifying income levels

• MyPath for Pennsylvania returns

Electronic filing is faster, more accurate, and gets you your refund quicker—if you're getting one.

Preparing for Next Year: A Few Quick Tips

• Adjust Withholdings: Use the IRS and PA tax calculators to make sure enough is being withheld.

• Track Deductible Expenses: Charitable donations, medical bills, mortgage interest.

• Contribute to Tax-Advantaged Accounts: IRAs, HSAs, 529s.

• Keep Digital Records: Scan and store tax documents securely.

The Future of Income Taxes: Will Simplicity Ever Reign?

There’s ongoing debate about simplifying the tax code. While some politicians float the idea of a “postcard tax return,” the complexities of deductions, credits, and compliance make that vision hard to achieve.

In the meantime, Pennsylvania's flat tax model may be as close as it gets to tax simplicity. Still, with changing federal laws and state regulations, having a knowledgeable attorney or tax professional on your side is always wise.

Taxes may never be fun, but understanding them—and planning for them—can make April 15 a lot less painful.

At Ament Law Group, we help individuals and families throughout Pennsylvania navigate the complexities of tax season. From coordinating with accountants to advising on estate and business tax strategies, we ensure your financial house is in order.

Call Ament Law Group today at (724) 733-3500 or visit www.ament.law for clear, friendly, and effective legal guidance this tax season—and beyond.