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 $169,800?

Question

Calculate the tax and divide by the income. Tax = .062*84900 = 5263.8.
Average rate = tax/income = .031 = 3.1%