How much is the income tax liability for a customer with $60 annual interest on U.S. government bonds in a 28% federal and 14% state tax bracket?

The correct answer is based on understanding how interest income from U.S. government bonds is taxed. While the income from these bonds is subject to federal income tax, it is exempt from state income tax.

In this scenario, the customer earns $60 in annual interest. To calculate the federal tax liability, you would apply the federal tax rate of 28% to the $60 interest. The calculation would be:

$60 x 0.28 = $16.80

Since there is no state tax on the income from U.S. government bonds, the state liability would be $0. Therefore, the total income tax liability consists solely of the federal tax, which totals $16.80. Consequently, the answer highlighting a higher dollar amount, such as $84 or $126, does not apply because it does not accurately reflect the correct tax calculation on this interest income.

As a result, the correct approach leads to the conclusion that the tax related to the annual interest is minimal compared to the options provided that imply higher tax liabilities.