Tax Equivalent Yield

Bond & Tax Details

Municipal Bond Yield (%)

Tax-exempt yield of the municipal bond

Federal Tax Rate (%)

Your marginal federal income tax rate

State Tax Rate (%) — optional

Your marginal state income tax rate (leave blank if none)

Taxable Bond Yield (%) — optional comparison

Yield of a comparable taxable bond for after-tax comparison

Federal Tax Bracket Presets

Tax-Equivalent Yield Results

Tax-Equivalent Yield

Taxable yield needed to match muni bond

Combined Tax Rate

Federal + state marginal rate

Annual Tax Savings

Yield advantage over taxable equivalent

After-Tax Comparison

Municipal Bond

After-tax yield (tax-exempt)

Taxable Bond (after tax)

Calculation Breakdown

TEY = Municipal Yield / (1 − Combined Tax Rate)

Understanding Tax-Equivalent Yield

Formula

TEY = Municipal Bond Yield / (1 − Marginal Tax Rate)

Key Concepts

Tax-Exempt Income

Municipal bond interest is typically exempt from federal tax and, for in-state bonds, often from state tax too.

Marginal Tax Rate

The tax rate applied to your last dollar of income. Higher brackets make munis increasingly attractive.

Break-Even Yield

If a taxable bond yields more than the TEY, choose the taxable bond. If less, the muni bond wins after tax.

When Municipal Bonds Are Most Attractive

High-income investors in the top federal tax brackets (32%, 35%, 37%)
Residents of high-tax states such as California, New York, New Jersey
Investors subject to the Alternative Minimum Tax (AMT)
Retirees seeking stable, tax-efficient income
When taxable bond spreads over Treasuries are compressed

Limitations

Some municipal bonds are subject to AMT — verify before investing
Capital gains from muni bond sales are still taxable
Tax laws change — recalculate after any rate changes
Does not account for credit risk differences between muni and taxable bonds
Social Security recipients may face additional taxation effects