What is my tax equivalent yield?
Type the tax-free yield of a municipal bond, your federal tax bracket, your state tax rate and whether the bond is from your state. The tax equivalent yield calculator shows the taxable yield you would need to keep the same after tax.
- Tax equivalent yield
- 4.225%
A tax-free yield of 3% equals a taxable yield of 4.225% at a 29% tax rate.
- Combined tax rate
- 29%
- Tax-free yield after tax
- 3%
Tax equivalent yield: 4.225%. A tax-free yield of 3% equals a taxable yield of 4.225% at a 29% tax rate.
Tax equivalent yield by federal tax rate
The results are estimates for information only. They are not financial, tax, or legal advice. Check the numbers with your lender or a qualified professional before you decide. Terms of use
How to calculate
Works out the taxable yield that matches a tax-free municipal bond yield after your federal and state income tax, and compares it with a taxable bond.
Example with the default inputs (Tax-free yield 3%, Federal tax rate 24%, State tax rate 5%, Free of your state tax too? Yes, in-state): A tax-free yield of 3% equals a taxable yield of 4.225% at a 29% tax rate.
Method: combined rate t = federal + state; kept = tax-free yield (in-state) or tax-free yield × (1 − state) (out of state); TEY = kept ÷ (1 − t); a taxable yield keeps yield × (1 − t).
- The combined rate adds the federal and state rates. It does not subtract a federal deduction for state tax.
- The bond’s interest is free of federal income tax and of the alternative minimum tax. Some municipal bonds are taxable or subject to the AMT.
- Tax on capital gains, the net investment income tax and effects on the taxation of Social Security benefits are not included.
Worked examples
Each example is checked against the calculator on every build.
- Tax-free yield 3%, Federal tax rate 37%, State tax rate 0%, Free of your state tax too? Yes, in-state gives Tax equivalent yield 4.761905%, Combined tax rate 37%, Tax-free yield after tax 3%.Source: Municipal Securities Rulemaking Board, Understanding Taxable Municipal Bonds (taxable equivalent yield = tax-exempt yield ÷ (1 − tax bracket); 3% at a 37% bracket is about 4.76%), https://www.msrb.org/Understanding-Taxable-Municipal-Bonds (retrieved 2026-10-03)
- Tax-free yield 3%, Federal tax rate 24%, State tax rate 5%, Free of your state tax too? Yes, in-state, Compare with a taxable yield 4% gives Tax equivalent yield 4.225352%, Combined tax rate 29%, Taxable yield after tax 2.84%, Which pays more after tax The tax-free yield.Source: FINRA, Bonds (municipal bonds are typically exempt from federal tax and, for residents of the issuing state, from state and local taxes), https://www.finra.org/investors/investing/investment-products/bonds (retrieved 2026-10-03)
- Tax-free yield 3%, Federal tax rate 24%, State tax rate 5%, Free of your state tax too? No, out of state, Compare with a taxable yield 5% gives Tax-free yield after tax 2.85%, Tax equivalent yield 4.014085%, Taxable yield after tax 3.55%, Which pays more after tax The taxable yield.Source: Municipal Securities Rulemaking Board, Understanding Taxable Municipal Bonds (taxable equivalent yield = tax-exempt yield ÷ (1 − tax bracket); 3% at a 37% bracket is about 4.76%), https://www.msrb.org/Understanding-Taxable-Municipal-Bonds (retrieved 2026-10-03)
- Tax-free yield 4.5%, Federal tax rate 22%, Free of your state tax too? Yes, in-state gives Tax equivalent yield 5.769231%, Combined tax rate 22%.Source: Municipal Securities Rulemaking Board, Understanding Taxable Municipal Bonds (taxable equivalent yield = tax-exempt yield ÷ (1 − tax bracket); 3% at a 37% bracket is about 4.76%), https://www.msrb.org/Understanding-Taxable-Municipal-Bonds (retrieved 2026-10-03)
How it works
Every typed percent is used as the exact decimal you typed. With the federal rate f and the state rate s (an empty state box counts as 0), as decimals:
- Combined tax rate t = f + s. It must be under 100%.
- Tax-free yield after tax k = the tax-free yield when the bond is in-state (free of your state tax), or tax-free yield × (1 − s) when it is out of state.
- Tax equivalent yield = k ÷ (1 − t).
- With a taxable yield y: taxable yield after tax = y × (1 − t), and which pays more after tax compares y with the tax equivalent yield (the same comparison as y × (1 − t) against k).
Rules
- Yields from 0% to 50%; federal rate from 0% to 99%; state rate from 0% to 50%; the two rates together under 100%.
Assumptions
- The rates simply add; no federal deduction for state tax is subtracted.
- The bond is free of federal income tax and the alternative minimum tax. Capital gains and other taxes are not included.
Worked examples by hand
MSRB: 3% at 37%, no state tax. 3 ÷ (1 − 0.37) = 3 ÷ 0.63 = 4.762%.
The default: 3% in-state at 24% + 5%, against 4% taxable. t = 29%; 3 ÷ 0.71 = 4.225%. The taxable bond keeps 4 × 0.71 = 2.84%, less than 3%, so the tax-free yield pays more.
3% out of state at 24% + 5%, against 5% taxable. k = 3 × 0.95 = 2.85; 2.85 ÷ 0.71 = 4.014%. 5% keeps 3.55%, more than 2.85%, so the taxable yield pays more.
4.5% at 22%. 4.5 ÷ 0.78 = 5.769%.
Other questions people ask
What is the tax equivalent yield formula?
Tax equivalent yield = tax-free yield ÷ (1 − tax rate). The MSRB’s example is a 3% municipal bond for an investor in the 37% federal bracket: 3 ÷ 0.63 = about 4.76%.
How do I include state tax?
A municipal bond from your own state is often free of state and local tax too, so add the state rate to the federal rate. At 24% federal and 5% state, a 3% in-state muni equals 3 ÷ 0.71 = 4.23% taxable.
What if the bond is from another state?
If your state taxes interest from other states’ bonds, the muni keeps only 1 − state rate of its yield: 3% × 0.95 = 2.85%, and 2.85 ÷ 0.71 = 4.01% taxable.
Which tax rate should I use?
Use your marginal rate: the bracket your last dollar of income falls in, not your average rate. A higher bracket makes tax-free interest worth more.
How do I compare a muni with a taxable bond or CD?
Type the taxable yield. If it is above the tax equivalent yield, the taxable bond keeps more after tax. A 4% taxable yield keeps 4 × 0.71 = 2.84% after 29% tax, less than the 3% a tax-free muni keeps.
Are all municipal bonds tax-free?
No. Issuers structure municipal bonds as tax-exempt, taxable, or subject to the alternative minimum tax. Check the bond’s tax status before you compare.