Select the correct answer.

Question

Sue's taxable income is $30,000 a year after accounting for deductions. Assuming she does not apply for tax credits, what is the correct way to compute the tax she owes? Use the following tax table.

Taxable Income Tax Rate
$0 - $9,875 10%
$9,876 - $40,125 12%
A.
10% x $9,875 + 12% x ($40,125 - $30,000)
B.
12% x ($40,125 - $30,000)
C.
12% x $30,000
D.
10% x $9,875 + 12% x $30,000
E.
10% x $9,875 + 12% x ($30,000 - $9,875)

Answer 1

To compute Sue's tax based on the provided tax table, we need to apply the correct tax rates to the portions of her income that fall within the specified brackets.

Sue's taxable income is $30,000:

1. For the first $9,875, she pays 10%.
2. The remaining amount ($30,000 - $9,875) is subject to the 12% tax rate.

Now we'll calculate the tax:

• Tax on the first $9,875:
  \(10% \times 9,875 = 0.10 \times 9,875 = 987.50\)

• Tax on the income from $9,876 to $30,000:
  This amount is \(30,000 - 9,875 = 20,125\).
  Now we calculate this tax at the 12% rate:
  \(12% \times (30,000 - 9,875) = 0.12 \times 20,125 = 2,415\)

So the total tax would be: \[ 987.50 + 2,415 = 3,402.50 \]

Based on the options provided, the correct way to compute the tax sue owes is:

E. 10% x $9,875 + 12% x ($30,000 - $9,875)

Thus, the answer is E.