Tax Equivalent Yield Calculator
Compare tax-exempt and taxable investment yields, including entered state/local treatment and optional investment-income tax.
U.S. taxable-account yield comparison using entered marginal rates. No automatic tax brackets, exemption eligibility, AMT or state/federal deduction interactions.
Compare federally tax-exempt and taxable annual yields using your marginal tax assumptions. Review the required taxable yield and annual after-tax income; no state or federal tax bracket is selected automatically.
Result
- Tax-exempt option after-tax yield
- 4.0000%
- Taxable option after-tax yield
- 3.8000%
Result breakdown (7)
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Calculation details & assumptions
Annual yield comparison in an ordinary U.S. taxable account. The exempt option is assumed federally tax-exempt; the selected state/local treatment applies to its full interest amount. This is not a determination that a particular bond or fund qualifies for exemption.
Taxable marginal rate = entered federal + state + local + additional investment-income tax rates. The optional additional rate applies only to the taxable option. Rates are added without federal/state deductibility interactions, SALT limits, automatic income brackets, NIIT threshold tests or other credits. Enter non-overlapping effective rates appropriate to your situation.
AMT-sensitive private-activity bonds, partially exempt fund distributions, capital gains, market discount, Social Security interactions and tax-advantaged retirement accounts are outside this model. State/local Exempt applies only when your security and residence qualify; an out-of-state municipal bond may be taxed differently.
Use comparable annual yield conventions and holding horizons. Tax-equivalent yield is a break-even yield, not a guaranteed return or a risk-adjusted recommendation. Credit, duration, liquidity, fees and reinvestment risk are not equated. Annual income uses amount × annual after-tax yield without compounding.
The sensitivity table varies only the combined rate on the taxable option, keeping the exempt option’s entered tax treatment fixed. Its rates are hypothetical comparison points, not a statutory tax-bracket table. A negative income advantage favors the taxable option under these assumptions.
Calculation details
Scroll horizontally or vertically to see more. Download CSV for the complete schedule.
| Taxable marginal rate (%) | Required taxable yield (%) |
|---|---|
| 0 | 4 |
| 10 | 4.44 |
| 20 | 5 |
| 24 | 5.26 |
| 30 | 5.71 |
| 40 | 6.67 |
| 50 | 8 |
| 60 | 10 |
How to use this calculator
Compare federally tax-exempt and taxable annual yields using your marginal tax assumptions. Review the required taxable yield and annual after-tax income; no state or federal tax bracket is selected automatically. Enter amounts in the units shown, select the applicable options, and click Calculate. Use Reset to restore the starting values.
Calculation formula
Equivalent taxable yield = exempt yield × (1 − exempt-option tax rate) / (1 − taxable-option tax rate). After-tax yield = entered annual yield × (1 − applicable tax rate).
Assumptions and accuracy
Review timing, rates, fees and result notes when comparing scenarios. Future returns and rates are assumptions rather than guaranteed outcomes. Monetary display follows the currency’s precision; intermediate calculations retain additional digits.
Choose what to calculate
Tax equivalent yield calculator
Compare taxable and tax-exempt annual yields using entered federal and state/local tax assumptions. Estimate tax-equivalent yield and after-tax income.
Related searches: Taxable equivalent yield calculator · Municipal bond tax equivalent yield calculator
Open this calculationUnderstanding this calculation
Tax-equivalent yield is the taxable annual yield needed to match an exempt option after the taxes entered here. Compare like-for-like annual yield conventions in an ordinary taxable account; a higher equivalent yield does not imply equal credit, interest-rate or liquidity risk.
Worked examples
Four percent exempt equals five percent taxable at a 20% rate
4% federally/state/local exempt yield; taxable comparison5%; combined taxable marginal rate20%; investment$10,000.
- Equivalent taxable yield =4%/(1−0.20)=5%.
- After-tax taxable yield =5%×0.80=4%.
- Both options produce$400 annual after-tax income on$10,000.
The tax-equivalent taxable yield is5%; income advantage is$0.
Try these inputsCommon questions
Which tax rate should I enter?
Use the marginal rates that apply to the next dollar of this interest income, not your average tax rate. Federal, state, local and optional additional investment-income rates are added. This simplified model does not calculate tax brackets, deductibility interactions or NIIT thresholds.
Are all municipal bonds completely tax-free?
No. This tool assumes the entered exempt yield qualifies for federal exemption, but you must select its state/local treatment. Out-of-state interest, partly exempt fund distributions, private-activity bond AMT and capital gains need separate analysis. Selecting Exempt does not establish eligibility.
Can I compare this with a Treasury bill or CD?
Use comparable annual yield conventions, but check tax treatment. This taxable option is subject to all entered rates; Treasury bill interest is federally taxable but state/local exempt. A fully exempt municipal-versus-Treasury comparison can use zero state/local rates. A state-taxed municipal bond versus a state-exempt Treasury requires separate per-investment state rates and is not represented by this simplified form.
Does the sensitivity table show current tax brackets?
No. It varies a hypothetical combined tax rate on the taxable option while keeping the exempt option’s tax treatment fixed. It is a mathematical comparison, not a state/federal tax schedule.
Scope and assumptions
User-entered marginal-rate model for federally exempt interest and taxable interest. State/local treatment is selected explicitly, optional surtax is entered, and all rates are combined without deduction interactions. No automatic bracket, AMT, NIIT eligibility, fund-distribution tax allocation, capital-gain or retirement-account model.
Sources
- IRS Publication550: investment income, exempt interest and special tax treatment
- Eaton Vance: tax-equivalent comparison scope and limitations
Calculation notes checked . Examples are mathematical checks under the stated assumptions.
Calculation methods and formulas
Compare After-Tax Yields
Compare federally tax-exempt and taxable annual yields using your marginal tax assumptions. Review the required taxable yield and annual after-tax income; no state or federal tax bracket is selected automatically.
Equivalent taxable yield = exempt yield × (1 − exempt-option tax rate) / (1 − taxable-option tax rate). After-tax yield = entered annual yield × (1 − applicable tax rate).
See our calculation methodology and review status for data versions, rounding and validation limitations. How default assumptions are chosen.