Tax-Equivalent Yield Calculator
The taxable yield you would need to match a tax-free municipal bond, at your own federal and state rates.
A taxable bond must yield 4.51% to match this municipal bond after tax at your rates. Municipal interest is exempt from federal tax and usually from state tax in your own state, which is why the advantage grows with your bracket. Some munis are subject to AMT, and capital gains on any bond sold before maturity are still taxable.
Municipal bond interest is generally exempt from federal income tax, and from state tax as well when you buy bonds issued in your own state. That makes a raw yield comparison against a corporate or Treasury bond meaningless. Dividing the muni yield by one minus your combined tax rate produces the taxable yield that would leave you with the same money.
Frequently asked questions
Who should consider municipal bonds?
Investors in higher tax brackets holding bonds in a taxable account. In a 401(k) or IRA the tax exemption is worthless, since those accounts are already sheltered, so taxable bonds with their higher raw yields are the better choice there.
Are municipal bonds completely tax free?
Interest is usually exempt from federal tax, and from state tax for in-state bonds. Capital gains from selling a muni before maturity are still taxable, and some private activity bonds are subject to the alternative minimum tax.
What about Treasury bonds?
Treasury interest is exempt from state and local tax but subject to federal tax, which is the mirror image of an out-of-state muni. In a high-tax state that exemption is worth real money and belongs in the comparison.
Are munis riskier than Treasuries?
Yes, though historical default rates on investment-grade munis are very low. They are backed by a city, state, or authority rather than the federal government, and general obligation bonds backed by taxing power are generally safer than revenue bonds tied to one project.
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Calculators model hypothetical outcomes from the inputs you provide. They are informational only, not financial, investment, tax, or legal advice.