Ava and her husband, Leo, file a joint return and are in the 32% Federal income tax bracket (AGI is $354,951) in 2021. Ava's salary is $89,750. Her employer offers a child and dependent care reimbursement plan that allows up to $6,900 of qualifying expenses to be reimbursed in exchange for a $6,900 reduction in the employee's salary. Because Ava and Leo have two minor children requiring child care that costs $7,590 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 - 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 . In addition, Ava will save $ 33 x of 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 $ higher V if they do not participate in the plan.
Ava and her husband, Leo, file a joint return and are in the 32% Federal income tax bracket (AGI is $354,951) in 2021. Ava's salary is $89,750. Her employer offers a child and dependent care reimbursement plan that allows up to $6,900 of qualifying expenses to be reimbursed in exchange for a $6,900 reduction in the employee's salary. Because Ava and Leo have two minor children requiring child care that costs $7,590 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 - 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 . In addition, Ava will save $ 33 x of 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 $ higher V if they do not participate in the plan.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:b. Assume, instead, that 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
associated with participating in the plan would be $
In addition, Ava will save
of 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
if they do not participate in the plan.
Transcribed Image Text:Ava and her husband, Leo, file a joint return and are in the 32% Federal income tax bracket (AGI is $354,951) in 2021. Ava's salary is
$89,750. Her employer offers a child and dependent care reimbursement plan that allows up to $6,900 of qualifying expenses to be
reimbursed in exchange for a $6,900 reduction in the employee's salary. Because Ava and Leo have two minor children requiring child care
that costs $7,590 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.
а.
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
$
In addition, Ava will save $
33
X of 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 $
higher
if they do not participate in the plan.
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