Answer: Signing up for the employer's child and dependent care reimbursement plan results in a higher Net Pay after tax and after the children's care than the alternative of not singing up for the plan
Explanation:
<u>Alternative 1 - Signing up for the employer's plan</u>
Gross salary = $75,000
Less reduction due to employer's plan = -$5,000
This leaves a taxable balance of = $70,000
Less income tax (24%) = -$16,800
Net pay after tax = $53,200
Less childcare expenses = ($5,800 * 2 children) = -$11,600
Net pay after childcare expenses = $41,600
Add reimbursable expenses from employer = +$5,000
Net pay to Ava after expenses = $46,600.
<u>Alternative 2 - Not Signing up for the employer's plan</u>
Gross salary = $75,000
Less income tax (24%) = -$18,000
Net pay after tax but before childcare expenses = $57,000
Less childcare expenses = ($5,800 * 2 children) = -$11,600
Net pay to Ava after expenses = $45,400.
Signing up for the employer's child and dependent care reimbursement plan results in a lower tax payment of (24% * $5,000 =) $1,200 due to the $5,000 deduction and the 24% tax rate.
