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B) Interest earned, though paid, throughout a bond year, must be accrued at the end of the bond year and reported as taxable income for the calendar year in how the bond year ends.

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The 'payroll' tax applies at a limited percentage of one's working income - no brackets. The employee, instead of 6.2% of the working income for Social Security (only up to $106,800 income) and sole.45% of it for Medicare (no limit). Together they take one more 7.65% of your income. There is no tax threshold (or tax free) level of income in this system.

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