Suppose the tax rate on the first $10,000 of income is 0 percent; 10 percent on the next $20,000; 20 percent on the next $20,000; 30 percent on the next $20,000; and 40 percent on income over $70,000. Family A has an income of $120,000 and Family B an income of $55,000.

What is the tax bill of each?

A. $32,000 for A and $7500 for B

B. $34,000 for A and $7500 for B

C. $48,000 for A and $16,500 for B

D. $32,000 for A and $6600 for B

option (A) $32,000 for A and $7500 for B

Explanation:

Given:

Tax rate as:

on the first $10,000 of income = 0%

10% on the next $20,000

20% on the next $20,000

30% on the next $20,000

40% on income over $70,000

Income of family A = $120,000

Thus,

For A

Up to $10,000; tax = 0

Tax amount from $10,000 to $30,000 at 10 % tax rate

= 10% * $20,000

= $2,000

From $30,000 to $50,000 at 20 % tax rate

= $20,000 * 20%

= $4,000

From $50,000 to $70,000 at 30 % tax rate

= $20,000 * 30%

= $6,000

Tax amount above $70,000 to $120,000 at 40 % tax rate

= (120,000 - $70,000) * 40%

= $50,000 * 40%

= $20,000

Therefore,

Total tax bill for family A

= $2,000 + $4,000 + $6,000 + $20,000

= $32,000

Similarly,

For family B

Income of family B = $55,000

Thus,

Up to $10,000 = $0

From $10,000 to $30,000 at 10 % tax rate

= $20,000 * 10%

= $2,000

From $30,000 to $50,000 at 20 % tax rate

= $20,000 * 20%

= $4,000

Tax amount from $50,000 to $70,000 at 30 % tax rate

= ($55,000 - $50,000) * 30%

= $5,000 * 30%

= $1,500

Therefore,

Total tax bill for family B = $2,000 + $4,000 + $1,500 = $7,500

Hence,

The correct answer is option (A) $32,000 for A and $7500 for B