Select the correct answer.

Question

Kim's taxable income is about $72,000 a year after accounting for deductions. Based on the following tax table and the use of tax brackets in the United States, which sentence about the taxes payable is true?

Taxable Income Tax Rate
$0 to $9,875 10%
$9,876 to $40,125 12%
$40,125 to $85,525 22%
A.
The actual tax is more than 22% of the taxable income.
B.
The tax payable is 22% of the taxable income.
C.
A part of the taxable income is taxed at 12%.
D.
The average tax rate on the taxable income is 10%.

Answer 1

To determine the correct answer, let's break down Kim's taxable income of $72,000 according to the provided tax brackets:

1. First bracket ($0 to $9,875 at 10%):

   • Income taxed: $9,875
   • Tax: $9,875 * 10% = $987.50

2. Second bracket ($9,876 to $40,125 at 12%):

   • Income taxed: $40,125 - $9,875 = $30,250
   • Tax: $30,250 * 12% = $3,630.00

3. Third bracket ($40,126 to $72,000 at 22%):

   • Income taxed: $72,000 - $40,125 = $31,875
   • Tax: $31,875 * 22% = $7,012.50

Now let's sum the taxes calculated from each bracket:

• Total Tax = $987.50 + $3,630.00 + $7,012.50 = $11,630.00

Now let's evaluate each statement:

A. The actual tax is more than 22% of the taxable income.

• 22% of $72,000 = $15,840. The actual tax ($11,630) is less than this, so this statement is false.

B. The tax payable is 22% of the taxable income.

• As we calculated, the tax payable is $11,630, which is not 22% of $72,000. This statement is false.

C. A part of the taxable income is taxed at 12%.

• Yes, the portion of income between $9,876 and $40,125 ($30,250) is taxed at 12%. This statement is true.

D. The average tax rate on the taxable income is 10%.

• Average tax rate = Total tax / Taxable income = $11,630 / $72,000 ≈ 16.19%. This statement is false.

The correct answer is: C. A part of the taxable income is taxed at 12%.