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 save income taxes because the reimbursement of child care expenses is gross income. The associated with participating in the plan would be $fill in the blank _4. In addition, Ava will save $fill in the blank 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 $fill in the blank Therefore Ava and Leo's income taxes will be $fill in the blank if they do not participate in the plan. 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 associated with participating in the plan would be $fill in the blank In addition, Ava will save $fill in the blank 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 $fill in the blank Therefore Ava and Leo's income taxes will be $fill in the blank 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
save income taxes because the reimbursement of child care expenses is
gross income. The associated with participating in the plan would be $fill in the blank _4. In addition, Ava will save $fill in the blank 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 $fill in the blank Therefore Ava and Leo's income taxes will be $fill in the blank if they do not participate in the plan.
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 associated with participating in the plan would be $fill in the blank In addition, Ava will save $fill in the blank 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 $fill in the blank Therefore Ava and Leo's income taxes will be $fill in the blank if they do not participate in the plan.
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