Trisha is married and has young children.The couple is in the 37% tax bracket.In order for Trisha and her husband to work,they pay $5,000 for daycare which earns them a $1,000 dependent care credit.Trisha has been offered a new job.The new job will pay a $5,000 lower salary,but the new employer will offer $5,000 of paid child care.Trisha cannot claim the dependent care credit if she receives employer-paid child care.Which of the following statements is correct? (Ignore payroll taxes.)

Question

Quizplus · Accepted Answer

Currently, Trisha pays $5,000 for daycare and earns a $1,000 dependent care credit, resulting in a net cost of $4,000 for child care. If she accepts the new job, her child care will be paid for by her employer, so she will not receive the dependent care credit. However, she will also not have to pay $5,000 out of pocket for child care. Therefore, her net savings will be $1,000. Additionally, even though she will have a lower salary, she will be in a lower tax bracket due to her lower income and the reduced cost of child care. This will result in a net increase of $850 in after-tax income.

Trisha Is Married and Has Young Children