Posted by Tisha on .
Suppose that the Government runs a pension fund to which all workers must contribute. The employee contribution rate is 6.2 percent on the first $84,900 of income. All income in excess of $84,900 is not taxed for pension purposes. What was the effective pension tax rate for a person earning $20,000 a year?
The tax rate is given to you; it is 6.2 percent.