Ava and her husband, Leo, file a joint return and are in the 24% Federal income tax bracket in 2020. Avas salary is $75,000. Her 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. 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 $fill in the blank 2cf1770ac007ff4_4 5,000 . In addition, Ava will save $fill in the blank 2cf1770ac007ff4_5 10 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 $fill in the blank 2cf1770ac007ff4_6 . Therefore Ava and Leo's income taxes will be $fill in the blank 2cf1770ac007ff4_7 higher if they do not participate in the plan. Feedback 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, 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 $fill in the blank 9cc883ff702b001_2 . In addition, Ava will save $fill in the blank 9cc883ff702b001_3 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 $fill in the blank 9cc883ff702b001_4 . Therefore Ava and Leo's income taxes will be $fill in the blank 9cc883ff702b001_5 lower if they do not participate in the plan.