So the only income is Social Security and Qualifying dividends?
Between 0% and 8% of Social Security is taxed, depending on your filing status and other income. What is in line 6a on the 1040? I am guessing that line 6b is zero, right? Even if it is not, the Standard Deduction will reduce the SS and the qualifying dividends a lot, to where you have only $7,000 on line 16. (1040).
Yes, qualifying dividends and capital gains are taxed differently from ordinary income. Have you printed the forms in your return or do you have the CD/download software? Look for the Capital Gains and Qualifying Dividends Worksheet (or the other way around) - this worksheet shows how the federal income tax was calculate on your return.
Please see IRS Tax Topic 409 which talks about how long-term capital gains are taxed (qualifying dividends are taxed the same way).
Yes, it is perfectly possible that you show $7,000 of taxable income yet owe no tax.
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