1. Enter the tax-free yield
Add the annual yield offered by a municipal bond or another investment whose interest may be exempt from income tax.
Tax-adjusted investment comparison
Tax-Equivalent Yield Calculator
Discover the taxable return required to match a tax-exempt municipal bond yield. Compare investment opportunities using your personal marginal tax rate.
Instant calculation
Taxable yield comparison
No financial data stored
Calculator inputs
Compare tax-free and taxable returns
Enter the annual tax-exempt yield and your marginal income tax rate. The taxable investment yield is optional.
Tax-adjusted result
Your equivalent taxable return
This is the taxable yield required to match the entered tax-exempt yield.
Your result will appear here
Complete the required fields to calculate the tax-equivalent yield and evaluate your investment.
How it works
Calculate tax-equivalent yield in three steps
The calculator converts a tax-exempt return into the taxable yield required to produce an equivalent after-tax result.
2. Add your marginal rate
Enter the marginal tax rate that would normally apply to interest earned from a taxable investment.
3. Compare the returns
Review the calculated taxable equivalent and compare it with taxable bonds, deposit accounts, or other investments.
Tax-Equivalent Yield Formula
TEY = Tax-Free Yield ÷ (1 − Tax Rate)
Example: A 3.50% tax-exempt yield with a 24% marginal tax rate has a tax-equivalent yield of approximately 4.61%.
Understanding the formula
Why your tax bracket changes the comparison
1
Convert the tax rate into decimal form
A marginal tax rate of 24% becomes 0.24 in the calculation.
2
Subtract the rate from one
Subtracting 0.24 from 1 produces an after-tax retention factor of 0.76.
3
Divide the tax-free yield
Dividing the tax-exempt yield by 0.76 gives the comparable taxable yield.
Yield comparison
How tax rates affect equivalent yield
The table shows the taxable equivalent of a 3.50% tax-exempt yield at several example marginal tax rates.
| Tax-Free Yield | Marginal Tax Rate | Tax-Equivalent Yield | Interpretation |
|---|---|---|---|
| 3.50% | 12% | 3.98% | A taxable return above 3.98% may provide more after tax. |
| 3.50% | 22% | 4.49% | The tax exemption becomes more valuable. |
| 3.50% | 24% | 4.61% | A taxable investment must earn about 4.61% to match. |
| 3.50% | 32% | 5.15% | Higher tax rates increase the equivalent yield. |
| 3.50% | 37% | 5.56% | The tax-free return may become substantially more competitive. |
A higher tax-equivalent yield does not automatically make an
investment better. Credit quality, maturity, liquidity, call
risk, inflation, fees, and state tax treatment should also be
considered.
Investment context
What is tax-equivalent yield?
Tax-equivalent yield helps investors compare tax-exempt income with income from investments that may be subject to tax.
Municipal bond comparison
Municipal bond interest may receive favorable federal, state, or local tax treatment. The exact treatment depends on the bond and the investor's circumstances.
Taxable investment comparison
Use the result when evaluating corporate bonds, certificates of deposit, savings products, or other taxable fixed-income opportunities.
Personal tax situation
The calculation is only as accurate as the tax rate entered. Your effective rate and marginal rate may be different.
Frequently asked questions
Tax-Equivalent Yield Calculator FAQs
Review common questions about tax-free yields, municipal bonds, and taxable investment comparisons.
Tax-equivalent yield is the taxable return an investment would need to earn to match the after-tax return of a tax-exempt investment. It is commonly used when comparing municipal bonds with taxable bonds.
Divide the tax-exempt yield by one minus your marginal tax rate. For example, divide a 3.5% yield by 0.76 when the relevant tax rate is 24%.
The marginal tax rate that applies to the additional investment income is generally used. Your effective tax rate represents the average rate paid across all income and may produce a different comparison.
Not always. Some municipal bond interest may be exempt from federal income tax but taxable at the state or local level. Certain bonds may also be subject to alternative minimum tax rules.
No. Yield is only one factor. Investors should also review credit risk, bond maturity, liquidity, call provisions, price volatility, inflation risk, and investment fees.
Yes. Enter the municipal bond's tax-exempt yield, your applicable marginal rate, and the CD's annual percentage yield. The calculator will show their tax-adjusted comparison.
The calculator uses the single marginal tax rate you enter. You may enter an appropriate combined rate when relevant, but state and federal tax interaction can vary. Consult a qualified tax professional for personalized guidance.
Financial and tax disclaimer
This Tax-Equivalent Yield Calculator provides estimates for educational and informational purposes only. It does not provide tax, legal, or investment advice. Tax rules, exemptions, and investment risks vary by jurisdiction and individual circumstances. Verify investment terms and consult qualified financial and tax professionals before making financial decisions.