Exercise 13-18 (Algorithmic) (LO. 4,8) 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 $5,350 of qualifying expenses to be reimbursed in exchange for a $5,350 reduction in the employee's salary (Ava's salary is $110,250). Because Ava and Leo have two minor children requiring child care that costs $5,885 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%. Do not round intermediate computations. If required, round your final answers 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 1,284 . In addition, Ava will save $ 450 X of FICA taxes due to the reduction in salary. 1,117 x . Therefore Alternatively, if Ava does not take advantage of the plan, their child and dependent care tax credit will be $ Ava and Leo's income taxes will be $ 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's salary was $30,000 and Ava and Leo's AGI is $23,000 and they are in the 10% tax bracket. In addition, Ava will save The income tax savings associated with participating in the plan would be $ of FICA taxes due to the reduction in salary. Therefore Ava Alternatively, if Ava does not take advantage of the plan, their child and dependent care tax credit will be $ and Leo's income taxes will be s lower X if they do not participate in the plan. Exercise 13-18 (Algorithmic) (LO. 4,8) 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 $5,350 of qualifying expenses to be reimbursed in exchange for a $5,350 reduction in the employee's salary (Ava's salary is $110,250). Because Ava and Leo have two minor children requiring child care that costs $5,885 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%. Do not round intermediate computations. If required, round your final answers 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 1,284 . In addition, Ava will save $ 450 X of FICA taxes due to the reduction in salary. 1,117 x . Therefore Alternatively, if Ava does not take advantage of the plan, their child and dependent care tax credit will be $ Ava and Leo's income taxes will be $ 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's salary was $30,000 and Ava and Leo's AGI is $23,000 and they are in the 10% tax bracket. In addition, Ava will save The income tax savings associated with participating in the plan would be $ of FICA taxes due to the reduction in salary. Therefore Ava Alternatively, if Ava does not take advantage of the plan, their child and dependent care tax credit will be $ and Leo's income taxes will be s lower X if they do not participate in the plan
