14. (8 points). Alex works as an employee at DR Engineering Company. He is paid

Question

14.

(8 points). Alex works as an employee at DR Engineering Company. He is paid a regular salary and

has taxes withheld from his paycheck. There are no unusual circumstances in his employment.

Alex happens to have a significant amount of investments. These investments generate approximately

$12,000 per year of taxable interest and dividend income. Each year he ends up with a balance owed on

his federal income tax return. He feels that since he has tax withheld on his paycheck, he has paid his

taxes and should not owe anything when he files his return.

Part a

. (3 points) Is Alex correct? Is it likely that he will owe tax when he files his income tax return?

Why or why not?

Explanation / Answer

Alex is not correct. Tax withheld on his paycheck is the tax on his salary, except this salary, he also have taxable interest and dividend income on which he has to federal taxes. Thus it is likely that he will owe tax when he files his income tax return due to $12000 of taxable interest and dividend income.

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