To determine the amount of social security benefits that are taxable, the following needs to be done. Add half of the social security benefits received during the year with any other income. The amount calculated should also include any tax exempt interest and other exclusions. The final figure obtained has to be compared to the appropriate base amount which is relevant to the marital status of the person filing the returns and whether they are being filed individually or jointly. If the total exceeds the base amount for the particular category, some taxes may be liable to be paid even on social security benefits.
In this particular problem it is given that Frank is single. The base amount applicable for him is $25,000.
Frank received $7000 in social security benefits. The adjusted gross income was $15000 and the tax exempt interest was $100. Adding half of $7000 to $15000 + $100 gives 3500 + 15000 + 100 = $18600. This is less than the base amount of $25000.
Therefore no tax is liable on the social security benefits. The correct option is option A.