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Read § 129. Why might a highly-paid employee prefer a dependent care assistance program to a 20% credit against income tax liability? What is the maximum available exclusion if taxpayer has one child? Compare these figure with that of § 21.
- Consider: Taxpayers (married filing jointly) have three children, none of whom has reached the age of 13. They both work and earn substantial incomes. They are in the 35% income tax bracket, and their credit under § 21 is 20% of their dependent care expenses. They incur $6000 of dependent care expenses during the year. Should they prefer an exclusion under § 129 or a tax credit under § 21?
- Same facts, except that the ages of the children are 10, 15, and 16. Should they prefer an exclusion under § 129 or a tax credit under § 21?
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