Ava and her husband, Leo, file a joint return and are in the 24% Federal income tax bracket (AGI is over $183,000) in 2021. Ava's 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 ___ save income taxes because the reimbursement of child care expenses is ____ gross income. The ___ associated with participating in the plan would be ___. In addition, Ava will save $ ___ in FICA taxes due to the reduction in salary. ____. 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 $ ___ ___ if they do not participate in the plan. b. Assume, instead, Ava's salary was $30,000 and Ava and Leo's AGI is $25,000 and they are in the 10% tax bracket. The ________ 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 ____ if they do not participate in the plan.
