Tax-Free Yield
3.00%
Tax Equivalent Yield Calculator
Compare tax-free municipal bond yields to taxable equivalents.
Taxable-Equivalent Yield
4.41%
Tax Bracket
32.00%
A taxable bond must yield this much to match the after-tax return of the tax-free bond.
How to use the Tax Equivalent Yield Calculator
The Tax Equivalent Yield Calculator is free and runs entirely in your browser — no sign-up, and nothing you enter leaves your device. It opens pre-filled with a realistic example, so you can see how it works before replacing any figure with your own; the results update as you type. Press Calculate to refresh the result panel, or Reset to return to the example.
The inputs it asks for:
- Tax-Free Yield — a percentage (enter 6 for 6%).
- Marginal Tax Rate — a percentage (enter 6 for 6%).
The formula
A tax-free municipal bond and a taxable bond are only comparable after tax. This grosses the tax-free yield up to the taxable yield that would leave you the same amount once your marginal rate is taken out:
Taxable-equivalent yield = Tax-free yield ÷ (1 − tax rate)- Tax-free yield
- the muni's yield, which you keep in full
- tax rate
- your marginal (top-bracket) rate, as a decimal
The higher your bracket, the more a tax-free yield is worth — which is why munis favour higher earners. Use your marginal rate (the rate on your next dollar), not your average rate.
Worked example
Using the example values — Tax-Free Yield 3%, Marginal Tax Rate 32% — the Tax Equivalent Yield Calculator returns a Taxable-Equivalent Yield of 4.41%. It also reports Tax-Free Yield (3.00%), Tax Bracket (32.00%).
Prefer your own numbers? Change any field above and this recomputes instantly.
Key terms
- Municipal bond
- Debt issued by a state or local government, often exempt from federal tax.
- Marginal tax rate
- The rate applied to your last dollar of income.
- Taxable-equivalent yield
- The pre-tax yield a taxable bond needs to match a tax-free one after tax.
Frequently asked questions
Which tax rate do I use?
Your marginal rate — the bracket your next dollar of interest would fall in — not your effective or average rate. Add state tax too if the muni is also state-exempt for you.
So a 4% muni beats a 5% corporate?
In a 24% bracket, 4% tax-free equals about 5.3% taxable, so yes — it would beat a 5% taxable bond after tax. Enter your own bracket to check.
Are munis ever taxable?
Some are (for example subject to AMT, or bought out of state), and a capital gain on any bond is taxable. This compares coupon yield only.