The United States

United States

The United States of America is a federal constitutional republic comprising fifty states and a federal district...

 Revenue Act of 1942, Pub. L. 753, Ch. 619, 56 Stat. 798 (Oct. 21, 1942), increased individual income tax rates, increased corporate tax rates (top rate rose from 31 % to 40 %), and reduced the personal exemption amount from $1,500 to $1,200 (married couples). The exemption amount for each dependent was reduced from $400 to $350.

A 5 % Victory tax on all individual incomes over $624 was created, with postwar credit.

The 35-60 % graduated rate schedule for excess profits tax was replaced with a flat 90 % rate.

The Act also created deductions for medical expenses.

Expenses for the production of income

Section 121 of the Revenue Act of 1942 enacted section 23(a)(2) of the Internal Revenue Code of 1939. That provisions, effective retroactively for tax years that began after December 31, 1938, allowed a deduction

Tax deduction

Income tax systems generally allow a tax deduction, i.e., a reduction of the income subject to tax, for various items, especially expenses incurred to produce income. Often these deductions are subject to limitations or conditions...

, for U.S. federal income tax purposes

Income tax in the United States

In the United States, a tax is imposed on income by the Federal, most states, and many local governments. The income tax is determined by applying a tax rate, which may increase as income increases, to taxable income as defined. Individuals and corporations are directly taxable, and estates and...

, for expenses

Expense

In common usage, an expense or expenditure is an outflow of money to another person or group to pay for an item or service, or for a category of costs. For a tenant, rent is an expense. For students or parents, tuition is an expense. Buying food, clothing, furniture or an automobile is often...

 incurred in investment

Investment

Investment has different meanings in finance and economics. Finance investment is putting money into something with the expectation of gain, that upon thorough analysis, has a high degree of security for the principal amount, as well as security of return, within an expected period of time...

 activities (activities for the production of income), even if such activities are not conducted in connection with a trade or business. The current version of section 23(a)(2) in section 212 of the Internal Revenue Code

Internal Revenue Code

The Internal Revenue Code is the domestic portion of Federal statutory tax law in the United States, published in various volumes of the United States Statutes at Large, and separately as Title 26 of the United States Code...

 of 1986.

Normal tax

A Normal Tax was levied on the net income

Net income

Net income is the residual income of a firm after adding total revenue and gains and subtracting all expenses and losses for the reporting period. Net income can be distributed among holders of common stock as a dividend or held by the firm as an addition to retained earnings...

of corporations as shown in the following table.

Revenue Act of 1942 Normal Tax on Corporations
Net Income (dollars)	Rate (percent)
0	24
25,000	31

Surtax on Corporation

A Surtax was levied on the corporation surtax net income (i.e., net income less allowances and exemptions) of corporations as shown in the following table.

Revenue Act of 1942 Surtax on Corporations
Corporation Surtax Net Income (dollars)	Rate (percent)
0	10
25,000	22
50,000	16

Tax on individuals

A normal tax and a surtax were levied against the net income of individuals as shown in the following table.

Revenue Act of 1942 Normal Tax and Surtax on Individuals
Net Income (dollars)	Normal Rate (percent)	Surtax Rate (percent)	Combined Rate (percent)
0	6	13	19
2,000	6	16	22
4,000	6	20	26
6,000	6	24	30
8,000	6	28	34
10,000	6	32	38
12,000	6	36	42
14,000	6	40	46
16,000	6	43	49
18,000	6	46	52
20,000	6	49	55
22,000	6	52	58
26,000	6	55	61
32,000	6	58	64
38,000	6	61	67
44,000	6	63	69
50,000	6	66	72
60,000	6	69	75
70,000	6	72	79
80,000	6	75	82
90,000	6	77	84
100,000	6	79	85
150,000	6	81	87
200,000	6	82	88

• Exemption of $500 for single filers and $1,200 for married couples and heads of family. A $350 exemption for each dependent under 18.