# What is my tax equivalent yield?

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.

- Page: https://www.acalculator.org/finance/tax-equivalent-yield-calculator
- JSON spec: https://www.acalculator.org/finance/tax-equivalent-yield-calculator.json
- Version: 2bfa7c409814

## Default answer

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.

## Inputs

| Key | Label | Description |
| --- | --- | --- |
| muni | Tax-free yield | The yield of the municipal bond or fund whose interest is free of federal income tax. |
| fed | Federal tax rate | Your federal income tax bracket: the rate on your last dollar of income. |
| state | State tax rate | Optional: your state and local income tax rate on interest. |
| instate | Free of your state tax too? | Yes when the bond is from your own state (or a fund of them), so its interest is not taxed by your state. |
| taxable | Compare with a taxable yield | Optional: the yield of a taxable bond or CD to compare with. |

## Outputs

| Key | Label | Description |
| --- | --- | --- |
| tey | Tax equivalent yield | The taxable yield that leaves the same after tax as the tax-free yield. |
| rate | Combined tax rate | The federal rate plus the state rate. |
| kept | Tax-free yield after tax | What the muni keeps: its yield, less your state tax when it is out of state. |
| taxableAfter | Taxable yield after tax | The taxable yield × (1 − combined tax rate). |
| better | Which pays more after tax | The taxable yield compared with the tax equivalent yield. |

## 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).

## Assumptions

- 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

1. muni = 3%, fed = 37%, state = 0%, instate = yes gives tey = 4.761905%, rate = 37%, kept = 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).
2. muni = 3%, fed = 24%, state = 5%, instate = yes, taxable = 4% gives tey = 4.225352%, rate = 29%, taxableAfter = 2.84%, better = 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).
3. muni = 3%, fed = 24%, state = 5%, instate = no, taxable = 5% gives kept = 2.85%, tey = 4.014085%, taxableAfter = 3.55%, better = 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).
4. muni = 4.5%, fed = 22%, instate = yes gives tey = 5.769231%, 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).

## FAQ

### 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.

## Sources

- Municipal Securities Rulemaking Board, Understanding Taxable Municipal Bonds: taxable equivalent yield = tax-exempt yield ÷ (1 − tax bracket). https://www.msrb.org/Understanding-Taxable-Municipal-Bonds (retrieved 2026-10-03)
- 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)