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Exercise $12-20($LO$.4,9)$

Ava and her husband, Leo, file a joint return and are in the $24\%$ tax bracket in $2023.$ Ava'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 $($Ava$\text{'}$s salary is $$75,000).$ Because Ava and Leo have two minor children requiring child care that costs $$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 $7\mathrm{.}65\%.$

If required, round your intermediate computations to the nearest dollar.

Click to view Percentage Credit based on Adjusted Gross Income.

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a$.$ 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 $fill in the blank $9$fa$9$a$605$cfdb$01$b$\_4$

$1,200$

$.$ In addition, Ava will save $fill in the blank $9$fa$9$a$605$cfdb$01$b$\_5$

$383$

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 $fill in the blank $9$fa$9$a$605$cfdb$01$b$\_6$

$1,160$

$.$ Therefore, Ava and Leo's income taxes will be $fill in the blank $9$fa$9$a$605$cfdb$01$b$\_7$

$40$

higher

if they do not participate in the plan.

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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

associated with participating in the plan would be $fill in the blank $1$bcd$0$c$022012$fde$\_2$

$500$

$.$ In addition, Ava will save $fill in the blank $1$bcd$0$c$022012$fde$\_3$

$383$

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 $fill in the blank $1$bcd$0$c$022012$fde$\_4$

$1,740$

$.$ Therefore, Ava and Leo's net taxes will be $fill in the blank $1$bcd$0$c$022012$fde$\_5$

$116$

lower

if they do not participate in the plan.

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