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Exercise 1 2 - 2 0 ( LO . 4 , 9 ) Ava and her husband, Leo, file a joint return and are in

Exercise 12-20(LO.4,9)
Ava and her husband, Leo, file a joint return and are in the 24% tax bracket in 2023. 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.
Question Content Area
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 9fa9a605cfdb01b_4
1,200
. In addition, Ava will save $fill in the blank 9fa9a605cfdb01b_5
383
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 9fa9a605cfdb01b_6
1,160
. Therefore, Ava and Leo's income taxes will be $fill in the blank 9fa9a605cfdb01b_7
40
higher
if they do not participate in the plan.
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Question Content Area
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 1bcd0c022012fde_2
500
. In addition, Ava will save $fill in the blank 1bcd0c022012fde_3
383
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 1bcd0c022012fde_4
1,740
. Therefore, Ava and Leo's net taxes will be $fill in the blank 1bcd0c022012fde_5
116
lower
if they do not participate in the plan.

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