Polly and her husband, Leo, file a joint return and expect to report 2015 AGI of $75,000. Polly'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. Because Polly and Leo have two minor children requiring child care that costs $5,800 each year, Polly is wondering if she should sign up for the program instead of taking advantage of the credit for child and dependent care expenses.

Polly and Leo are in the 25% tax bracket.

Do not round intermediate computations. If required, round your final answers to nearest dollar.

Click to view Exhibit 12-3, Computing the Child and Dependent Care Credit based on Adjusted Gross Income.

a. If Polly and Leo take advantage of the plan, they Selectwillwill notCorrect 1 of Item 1 save income taxes. The reimbursement of child care expenses is Selectincluded inexcluded fromCorrect 2 of Item 1 gross income. Alternatively, if Polly does not take advantage of the plan, her income taxes will be Select$90 lower$90 higher$1160 lower$1160 higherCorrect 3 of Item 1 than they otherwise would be.

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The child tax credit provisions allow individual taxpayers to take a tax credit based solely on the number of their qualifying children. This credit is one of several "family-friendly" provisions that currently is part of our tax law. To be eligible for the credit, the child must be under age 17, a U.S. citizen, and claimed as a dependent on the taxpayer's return.

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b. Assume, instead, that Polly and Leo's AGI is $25,000 and they are in the 10% tax bracket.

If they choose to take the child and dependent care credit, the net tax saving from taking the credit would be $ . They would benefit more from the Selectcreditreimbursement planCorrect 2 of Item 2 .