Taxable Equivalent Yield Calculator — Muni Bond Comparison
A tax-exempt municipal bond yielding 3.5% is not directly comparable to a taxable corporate bond yielding 5% — the comparison depends on your tax rate. This calculator finds the taxable yield required to match any tax-exempt yield after federal (and optional state) income tax.
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A taxable bond must yield 4.49% to match 3.5% tax-exempt after your 22% combined tax rate
4.49%
taxable TEYAfter-tax return (= muni yield)
78%
Tax paid on equivalent taxable yield
22%
- 1
Combined marginal rate
federal only = 22% ÷ 100 = 22% - 2
1 − combined rate
1 − 0.22 = 0.78 - 3
Taxable equivalent yield
3.5% ÷ 0.78 = 4.49
How does this calculator work?
TEY = tax-exempt yield ÷ (1 − marginal rate). A 3.5% muni at 24% federal = 3.5 ÷ 0.76 = 4.61% TEY. If a taxable bond offers more than 4.61%, it beats the muni after tax at that bracket; if less, the muni wins. Higher tax rates make munis relatively more attractive.
Formula
How this is calculated
Municipal bonds issued by state and local governments in the United States are generally exempt from federal income tax (and often state tax if you are a resident of the issuing state). This makes their stated yields incomparable to taxable yields at face value — you need to gross them up to find the taxable equivalent.
The formula TEY = tax-exempt yield ÷ (1 − marginal rate) answers: "What taxable yield would leave you with the same after-tax income?" For example, a 3.5% muni yield with a 22% federal rate has a TEY of 3.5 ÷ 0.78 = 4.49%. Any taxable bond yielding above 4.49% beats the muni after federal tax at that rate; below 4.49%, the muni wins.
When state income tax also applies, the combined rate accounts for the interaction: combined = federal + state × (1 − federal), because state tax is generally levied on income already reduced by federal deductions in some states (this is a standard approximation; exact treatment varies by state and whether you itemise). If the muni bond is issued in your home state, it is typically exempt from state tax as well, so only the federal rate applies.
Frequently asked questions
Investors in higher federal tax brackets (32%, 35%, 37%) gain the most from the tax exemption, because each percentage point of yield exemption saves them more dollars in tax. At a 10% or 12% bracket, the muni advantage is small and a taxable high-yield bond may well produce more after-tax income.
Usually only if the bond is issued in your home state. Interest on out-of-state munis is typically subject to state income tax. Set the "Bond state-exempt?" field to 0 (no) if your muni is from another state, or if your state taxes all bond income regardless.
Some private-activity municipal bonds (PABs) — used to fund airports, stadiums, or private projects — generate interest that is subject to the federal AMT even though it is otherwise income-tax-exempt. This calculator does not distinguish PAB from general-obligation munis; check the bond's offering documents for AMT status.
Also known as
TG we-Calculate Editorial Team. (2026). Taxable Equivalent Yield Calculator — Muni Bond Comparison [Online calculator]. TG we-Calculate. https://we-calculate.com/calculator/taxable-equivalent-yield-calculator
TG we-Calculate Editorial Team. "Taxable Equivalent Yield Calculator — Muni Bond Comparison." TG we-Calculate. 2026. https://we-calculate.com/calculator/taxable-equivalent-yield-calculator.
TG we-Calculate Editorial Team, "Taxable Equivalent Yield Calculator — Muni Bond Comparison," TG we-Calculate, 2026. [Online]. Available: https://we-calculate.com/calculator/taxable-equivalent-yield-calculator
@misc{wecalculate_taxable_equivalent_yield_calculator, title = {Taxable Equivalent Yield Calculator — Muni Bond Comparison}, author = {{TG we-Calculate Editorial Team}}, howpublished = {\url{https://we-calculate.com/calculator/taxable-equivalent-yield-calculator}}, year = {2026}, note = {TG we-Calculate} }
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