What is tax equivalent yield?

Tax equivalent yield (TEY) is the pre-tax yield a taxable bond must earn to produce the same after-tax return as a tax-exempt bond. Formula: TEY = Muni Yield / (1 − Tax Rate).

When should I choose a muni bond over a taxable bond?

If a taxable bond's yield is below the calculated tax equivalent yield, the muni bond offers a better after-tax return. The higher your tax bracket, the more attractive munis become.

Should I include state taxes in the calculation?

Yes, if your state taxes investment income. Many states exempt interest from in-state municipal bonds, which increases the effective tax benefit. Add your state marginal rate to the federal rate in the combined rate field.

Does this apply to all investors?

Tax equivalent yield is most relevant for investors in higher federal brackets (24 % and above). Investors in low brackets often find taxable bonds more competitive after tax.

What if the muni is subject to the Alternative Minimum Tax (AMT)?

Some private-activity municipal bonds are subject to AMT. If the muni is an AMT bond, your effective tax rate advantage may be reduced or eliminated. Confirm AMT status with your broker.

What is a typical muni bond yield?

Muni yields vary by credit quality, maturity, and market conditions. Investment-grade 10-year munis have historically yielded between 2 % and 5 %. Always verify current rates from a broker or bond data provider.

Tax Equivalent Yield Calculator

Name: Tax Equivalent Yield Calculator
Availability: InStock
Author: Nham Vu

Find the taxable yield you need to match a tax-exempt municipal bond return at your marginal tax rate.

Bond & Tax Details

Municipal Bond Yield (%)

Annual yield of the tax-exempt muni bond.

Federal Marginal Tax Rate (%)

State Marginal Tax Rate (%) (optional)

Add your state rate if your state taxes investment income (and the muni is not state-exempt).

Tax Equivalent Yield

— %

Bracket Comparison (for —% muni yield)

Federal Rate	TEY	Verdict
Enter a muni yield above.

Summary

Find the taxable yield you need to match a tax-exempt municipal bond return at your marginal tax rate.

How it works

Enter the yield of the tax-exempt municipal bond (as a percentage).
Enter your marginal federal income tax rate (and optionally state tax rate).
The calculator divides the muni yield by (1 minus your combined tax rate).
The result is the taxable equivalent yield — a taxable bond must match or beat this to offer a better after-tax return.
Use the comparison table to see breakeven yields across common tax brackets.

Use cases

Decide whether a municipal bond or corporate bond is the better after-tax investment.
Quickly evaluate bond offers from a broker against your tax situation.
Compare muni yields to Treasury or CD rates at your marginal tax rate.
Model the benefit of tax-exempt income at different federal bracket levels.
Incorporate state tax exemption when your state exempts in-state munis.

Frequently Asked Questions

Last updated: 2026-07-24 · Reviewed by Nham Vu