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Tax Equivalent Yield Calculator
Find out what a taxable bond would have to pay to match a tax-free municipal bond after taxes, using your own federal and state tax rates. Switch modes to see the after-tax yield of a taxable bond, CD or savings account instead.
Last updated:
Calculate
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Tax-free yield (e.g. muni) or taxable yield, depending on the mode.
%
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Enter your values to see the result.
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How to use the Tax Equivalent Yield Calculator
- Pick a mode: tax-equivalent yield of a tax-free bond, or after-tax yield of a taxable one.
- Enter the yield of the bond you are looking at.
- Choose the exemption: in-state muni (federal and state), out-of-state muni (federal only) or Treasury (state only).
- Enter your marginal federal and state tax rates.
- Compare: a taxable bond is better only if it yields more than the taxable-equivalent yield.
Tax equivalent yield formulas
- Fully tax-free bond: TEY = y ÷ (1 − tc)
- Bond still taxed at rate tr: TEY = y × (1 − tr) ÷ (1 − tc)
- After-tax yield of a taxable bond: y × (1 − tc)
- Combined rate: tc = federal + state, or federal + state × (1 − federal) if state tax is deducted federally
Taxable-equivalent yields (federal tax only, no state tax)
| Tax-free yield | 12% | 22% | 24% | 32% | 35% | 37% |
|---|---|---|---|---|---|---|
| 2.0% | 2.27% | 2.56% | 2.63% | 2.94% | 3.08% | 3.17% |
| 2.5% | 2.84% | 3.21% | 3.29% | 3.68% | 3.85% | 3.97% |
| 3.0% | 3.41% | 3.85% | 3.95% | 4.41% | 4.62% | 4.76% |
| 3.5% | 3.98% | 4.49% | 4.61% | 5.15% | 5.38% | 5.56% |
| 4.0% | 4.55% | 5.13% | 5.26% | 5.88% | 6.15% | 6.35% |
| 4.5% | 5.11% | 5.77% | 5.92% | 6.62% | 6.92% | 7.14% |
Frequently asked questions
What is the tax equivalent yield formula?
For a bond free of all income tax: TEY = tax-free yield ÷ (1 − tax rate). A 3.5% muni for someone with a 24% federal and 5% state rate (29% combined) has a TEY of 3.5 ÷ 0.71 = 4.93%.
Which tax rate should I use?
Use your marginal rate, the rate on your next dollar of income, not your average or effective rate, because the interest is added on top of your other income. In the US, federal brackets range from 10% to 37%.
What about out-of-state municipal bonds?
Munis from another state are usually exempt from federal tax but taxed by your state. The calculator then keeps (1 − state rate) of the muni yield and divides by (1 − combined rate).
How are Treasury bills and bonds treated?
US Treasury interest is taxed federally but exempt from state and local income tax. Choose the Treasury option to compare a Treasury yield with a fully taxable CD or corporate bond.
What does the state-tax deduction option do?
If you itemize and deduct state income tax on your federal return, the effective combined rate is federal + state × (1 − federal) instead of the simple sum. Many people take the standard deduction or hit the SALT cap, so it is off by default.
Does this include the Net Investment Income Tax or AMT?
No. Add the 3.8% NIIT to your federal rate if it applies to you. Some private-activity munis are subject to the alternative minimum tax. This calculator gives a straightforward comparison and is not tax advice.
Are all the tools on FreeToolCabin tested for quality and accuracy?
Yes! Every tool on our site undergoes automated Q/A testing in real browser environments to ensure high precision, correct output, and zero errors. If you happen to spot a bug or have a suggestion, please contact us at [email protected] and our team will review it right away.
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