Tax-Equivalent Yield Calculator
Calculate the tax-equivalent yield of municipal bonds.
Compare tax-free bond yields to taxable investment yields based on your tax bracket.
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Tax-Equivalent Yield
Tax-Equivalent Yield (TEY) shows what a taxable investment would need to earn to match a tax-free municipal bond"s return.
TEY = Tax-Free Yield / (1 - Marginal Tax Rate)
Where:
- Tax-Free Yield = Municipal bond yield (exempt from federal tax)
- Marginal Tax Rate = Your highest federal income tax bracket (as decimal)
Example by tax bracket — 4% municipal bond yield:
| Tax Bracket | TEY |
|---|---|
| 10% | 4.44% |
| 12% | 4.55% |
| 22% | 5.13% |
| 24% | 5.26% |
| 32% | 5.88% |
| 35% | 6.15% |
| 37% | 6.35% |
Key insight: The higher your tax bracket, the more valuable tax-free income becomes. A 4% muni bond is equivalent to a 6.35% taxable bond for someone in the 37% bracket.
When munis make sense:
- You are in the 22% bracket or higher
- You want stable, low-risk income
- You are in a high-tax state (additional state tax savings)