Tax-Equivalent Yield Calculator

Compare municipal bond yields to taxable bonds. See the equivalent taxable yield for your tax bracket.
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Tax-Equivalent Yield

4.93%

What a taxable bond must yield to match

Tax-Free Yield

3.50%

Municipal bond yield

Yield Comparison

Tax-Free Muni Bond Yield3.50%
Federal Tax Bracket24.0%
State Tax Rate5.0%
Combined Tax Rate29.0%
Tax-Equivalent Yield4.93%
Effective Tax Advantage+1.43%

A taxable bond would need to yield 4.93% to match the after-tax return of this 3.50% municipal bond, given your 29.0% combined tax rate.

Use the Tax-Equivalent Yield Calculator above to calculate your results. Enter your values and see instant results — all calculations run in your browser.

Disclaimer: This calculator is for informational purposes only and does not constitute tax, financial, or legal advice. Results are estimates based on the information you provide and current rates. Always consult a qualified tax professional or financial advisor for advice specific to your situation.

How It Works

This Tax-Equivalent Yield Calculator helps you understand the true value of tax-exempt municipal bonds compared to taxable investments. By factoring in your specific tax bracket, it reveals the equivalent taxable yield you would need to earn on a taxable bond to match the after-tax return of a municipal bond. This is crucial for making informed investment decisions, especially as federal income tax brackets for 2026 are projected to adjust for inflation, impacting your after-tax returns.

The calculator uses a straightforward formula: Tax-Equivalent Yield = Municipal Bond Yield / (1 - Your Marginal Tax Rate). This formula effectively 'grosses up' the tax-exempt yield to show what a taxable investment would need to pay before taxes to provide the same after-tax income. For example, if your marginal federal income tax rate combined with state and local taxes totals 30%, a 4% municipal bond yield would be equivalent to a 5.71% taxable yield.

When using this calculator, remember to consider all applicable taxes, including federal, state, and local income taxes, as these collectively determine your marginal tax rate. A common mistake is only considering federal taxes, which can significantly understate the true tax-equivalent yield. Also, be aware that some municipal bonds may be subject to the Alternative Minimum Tax (AMT), which could slightly reduce their tax-exempt advantage for certain high-income earners.

Example: Comparing a Muni Bond to a Corporate Bond

  1. 1 You are considering a municipal bond yielding 3.5% and a corporate bond yielding 5%. Your combined federal and state marginal income tax rate for 2026 is projected to be 28%.
  2. 2 Using the formula: Tax-Equivalent Yield = 3.5% / (1 - 0.28). This calculates to 3.5% / 0.72.
  3. 3 The tax-equivalent yield for the municipal bond is 4.86%.
  4. 4 In this scenario, a 3.5% municipal bond provides the same after-tax return as a taxable bond yielding 4.86%. Since the corporate bond offers 5%, it would provide a slightly higher after-tax return than the municipal bond in this specific example. This demonstrates how a seemingly lower municipal yield can be competitive or even superior to a higher taxable yield after accounting for taxes.

Source: SEC · Last updated: April 2026

Frequently Asked Questions

What is tax-equivalent yield?
Tax-equivalent yield converts a tax-free municipal bond yield to the equivalent taxable yield you would need to earn the same after-tax return. A 4% muni bond equals a 6.15% taxable yield for someone in the 35% tax bracket.
Are municipal bonds worth it for my tax bracket?
Municipal bonds become more attractive in higher tax brackets. In the 32-37% federal brackets, muni bonds often outperform comparable taxable bonds on an after-tax basis. In lower brackets, taxable bonds may offer better returns.
How do I calculate tax-equivalent yield?
Divide the municipal bond yield by (1 minus your marginal tax rate). If you are in the 35% bracket and the muni yields 4%, the tax-equivalent yield is 4% divided by 0.65 = 6.15%.

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