The apportionment requirement made income taxes on property practically impossible, and Congress did not want to limit the income tax solely to a tax on wages. Therefore, in 1909 Congress proposed the Sixteenth Amendment, which became part of the Constitution in 1913 when it was ratified by the required number of states. The Amendment modified the requirement for apportionment of direct taxes by exempting all income taxes—whether considered direct or indirect—from the apportionment requirement. Congress re-adopted the income tax that same year, levying a 1% tax on net personal incomes above $3,000, with a 6% surtax on incomes above $500,000. By 1918, the top rate of the income tax was increased to 77% (on income over $1,000,000) to finance World War I. The top marginal tax rate was reduced to 58% in 1922, to 25% in 1925, and finally to 24% in 1929. In 1932 the top marginal tax rate was increased to 63% during the Great Depression and steadily increased, reaching 94% (on all income over $200,000) in 1945. During World War II, Congress introduced payroll withholding and quarterly tax payments. Top marginal tax rates stayed near or above 90% until 1964 when the top marginal tax rate was lowered to 70%. The top marginal tax rate was lowered to 50% in 1982 and eventually to 28% in 1988.

At first the income tax was incrementally expanded by the Congress of the United States, and then inflation automatically raised most persons into tax brackets formerly reserved for the wealthy until income tax brackets were adjusted for inflation. Income tax now applies to almost two-thirds of the population. The lowest earning workers, especially those with dependents, pay no income taxes as a group and actually get a small subsidy from the federal government because of child credits and the Earned Income Tax Credit.

Some lower income individuals pay a proportionately higher share of payroll taxes for Social Security and Medicare than do some higher income individuals in terms of the effective tax rate. All income earned up to a point, adjusted annually for inflation ($94,200 for the year 2006 and $97,500 for the year 2007) is taxed at 7.65% (consisting of the 6.2% Social Security tax and the 1.45% Medicare tax) on the employee with an addition 7.65% in tax incurred by the employer. The annual limitation amount is sometimes called the "Social Security tax wage base amount" or "Contribution and Benefit Base." Above the annual limit amount, only the 1.45% Medicare tax is imposed. In terms of the effective rate, this means that a worker earning $20,000 for 2006 pays at a 7.65% effective rate ($1,530) while a worker earning $200,000 pays at an effective rate of about 4.37% ($8,740).

When an individual's Social Security benefit is calculated, income in excess of each year's Social Security Tax wage base amount (e.g., $97,500 for 2007) is disregarded for purposes of the calculation of future benefits. Although some lower income individuals pay a proportionately higher share of payroll taxes than do higher income individuals in terms of the "effective tax rate", the lower income individuals also receive a proportionately higher share of Social Security benefits than do some higher income individuals, since the lower income individuals will receive a much higher income replacement percentage in retirement than higher income individuals affected by the Social Security tax wage base cap. If the higher income individuals want to receive an income replacement percentage in retirement that is similar to the income replacement percentage that lower income individuals receive from Social Security, higher income individuals must achieve this through other means such as 401(k)s, IRAs, defined benefit pension plans, personal savings, etc. As a percentage of income, some higher income individuals receive less from Social Security than do lower income individuals.

Self employed people pay the entire 15.3%, but are allowed to deduct one-half of this amount in computing taxable income for purposes of the Federal income tax.

The federal government is now financed primarily by personal and corporate income taxes. While it was originally funded via tariffs upon imported goods, tariffs now represent only a minor portion of federal revenues. There are also non-tax fees to recompense agencies for services or to fill specific trust funds such as the fee placed upon airline tickets for airport expansion and air traffic control. Often the receipts intended to be placed in "trust" funds are used for other purposes, with the government posting an IOU ('I owe you') in the form of a federal bond or other accounting instrument, then spending the money on unrelated current expenditures.

The federal government collects several specific taxes in addition to the general income tax. Social Security and Medicare are large social support programs which are funded by taxes on personal earned income. Estate taxes are levied on inheritance. Net long-term capital gains as well as certain types of qualified dividend income are taxed preferentially.

Federal excise taxes are applied to specific items such as motor fuels, tires, telephone usage, tobacco products, and alcoholic beverages. Excise taxes are often, but not always, allocated to special funds related to the object or activity taxed.