Ava and her husband, Leo, file a joint return and are in the 24% Federal income tax bracket in 2020. 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 would v save income taxes because the reimbursement of child care expenses is excluded from gross income. The income tax savings v associated with participating in the plan would be X in FICA taxes due to the reduction in salary. x . In addition, Ava will save $ Alternatively, if Ava does not take advantage of the plan, their child and dependent care tax credit will be x . Therefore Ava and Leo's income taxes will be $ x higher v if they do not participate in the plan. Feedback 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 income tax savings v 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 $ lower v if they do not participate in the plan.
Ava and her husband, Leo, file a joint return and are in the 24% Federal income tax bracket in 2020. 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 would v save income taxes because the reimbursement of child care expenses is excluded from gross income. The income tax savings v associated with participating in the plan would be X in FICA taxes due to the reduction in salary. x . In addition, Ava will save $ Alternatively, if Ava does not take advantage of the plan, their child and dependent care tax credit will be x . Therefore Ava and Leo's income taxes will be $ x higher v if they do not participate in the plan. Feedback 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 income tax savings v 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 $ lower v if they do not participate in the plan.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Transcribed Image Text:Ava and her husband, Leo, file a joint return and are in the 24% Federal income tax bracket in 2020. 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
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 v
save income taxes because the reimbursement of child care expenses is
excluded from v gross income. The income tax savings v
associated with participating in the plan would be
X. In addition, Ava will save $
X 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 $
X. Therefore
Ava and Leo's income taxes will be $
X higher v if they do not participate in the plan.
Feedback
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 income tax savings v
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 $
lower v
if they do not participate in the plan.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education