Marty earned $5,000 in interest income from the Honey Springs Bank. She failed to notify the bank that she was not subject to backup withholding.

a. If Marty's taxable income puts her in the 25 percent bracket, how much would Honey Springs Bank withhold on the $5,000 of interest earnings?
b. If Marty's taxable income puts her in the 15 percent bracket, how much would Honey Springs Bank withhold on the $5,000 of interest earnings?

Question

Marty earned $5,000 in interest income from the Honey Springs Bank. She failed to notify the bank that she was not subject to backup withholding.
​
a. If Marty's taxable income puts her in the 25 percent bracket, how much would Honey Springs Bank withhold on the $5,000 of interest earnings?
b. If Marty's taxable income puts her in the 15 percent bracket, how much would Honey Springs Bank withhold on the $5,000 of interest earnings?

Quizplus · Accepted Answer

The Answer is a. $1,200. The bank should withhold at the statutory rate of 24 percent, and thus would retain $1,200.
b. $1,200. Marty's personal tax rate has nothing to do with the amount the bank is required to withhold.

Marty Earned $5,000 in Interest Income from the Honey Springs