Ava and her husband, Leo, file a joint return and are in the 24% Federal income tax bracket. Ava's salary is $120,500. Her employer offers a child and dependent care reimbursement plan that allows up to $5,100 of qualifying expenses to be reimbursed in exchange for a $5,100 reduction in the employee's salary. Because Ava and Leo have two minor children requiring child care that costs $5,610 each year, Ava is wondering if she should sign up for the program instead of taking advantage of the credit for child and dependent care expenses. Analyze the effect of the two alternatives.

a. If Ava and Leo take advantage of the plan, they wouldsave income taxes because the reimbursement of child care expenses is excluded from gross income. The tax savings associated with participating in the plan would be Alternatively, if Ava does not take advantage of the plan, their child and dependent tax credit will be Leo's income taxes will be Therefore Ava and higher if they do not participate in the plan. Feedback Check My Work The credit for child and dependent care expenses mitigates the inequity felt by working taxpayers who must pay for child care services to work outside the home. This credit is a specified percentage of expenses incurred to enable the taxpayer to work or to seek employment. The credit is claimed by completing and filing Form 2441 (Credit for Child and Dependent Care Expenses). b. Assume, instead, that Ava and Leo's AGI is $23,500 and they are in the 10% tax bracket. The tax savings associated with participating in the plan would be Alternatively, if Ava does not take advantage of the plan, their child and dependent tax credit will be , Therefore Ava and Leo's income taxes will be lowerif they do not participate in the plan