Ava and her husband, Leo, file a joint return and are in the 24% tax bracket in 2020. Ava's employer offers a child and dependent care reimbursement plan that allows up to $5,000 of qualifying expenses to be reimbursed in exchange for a $5,000 reduction in the employee's salary (Ava's salary is $75,000). Because Ava and Leo have two minor children requiring child care that costs $5,800 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. Assume a FICA tax rate of 7.65%.

If required, round your intermediate computations to the nearest dollar.

Click to view Percentage Credit based on Adjusted Gross Income.

a. If Ava and Leo take advantage of the plan, they would save income taxes because the reimbursement of child care expenses is excluded from gross income. The income tax savings associated with participating in the plan would be $_________. In addition, Ava will save $_________ in FICA taxes due to the reduction in salary.

Alternatively, if Ava does not take advantage of the plan, their child and dependent care tax credit will be $_________ higher if they do not participate in the plan.

Assume, instead, Avas salary was $30,000 and Ava and Leo's AGI is $25,000 and they are in the 10% tax bracket.

The income tax savings associated with participating in the plan would be $________ In addition, Ava will save $_______ in FICA taxes due to the reduction in salary.

Alternatively, if Ava does not take advantage of the plan, their child and dependent care tax credit will be $_______Therefore Ava and Leo's income taxes will be $_______ lower if they do not participate in the plan.