Tax-Equivalent Yield Calculator

Compare municipal bond yields to taxable bonds. See the equivalent taxable yield for your tax bracket.

By Konstantin Iakovlev · Updated April 2026 · Source: SEC

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Tax-Equivalent Yield

4.93%

What a taxable bond must yield to match

Tax-Free Yield

3.50%

Municipal bond yield

Yield Comparison

Tax-Free Muni Bond Yield3.50%
Federal Tax Bracket24.0%
State Tax Rate5.0%
Combined Tax Rate29.0%
Tax-Equivalent Yield4.93%
Effective Tax Advantage+1.43%

A taxable bond would need to yield 4.93% to match the after-tax return of this 3.50% municipal bond, given your 29.0% combined tax rate.

Use the Tax-Equivalent Yield Calculator above to calculate your results. Enter your values and see instant results — all calculations run in your browser.

Disclaimer: This calculator is for informational purposes only and does not constitute tax, financial, or legal advice. Results are estimates based on the information you provide and current rates. Always consult a qualified tax professional or financial advisor for advice specific to your situation.

How It Works

Comparing a tax-exempt municipal bond to a taxable investment is not a fair fight until you account for taxes, and that is the gap this tool closes. By reading in your specific tax bracket, it shows the yield a taxable bond would have to pay to match a municipal bond's after-tax return. The comparison matters all the more as federal income tax brackets for 2026 are projected to shift with inflation, moving the after-tax returns underneath every decision.

The math behind it is direct: Tax-Equivalent Yield = Municipal Bond Yield / (1 - Your Marginal Tax Rate). In effect the formula grosses up the tax-exempt yield, revealing what a taxable holding would need to earn before taxes to deliver the same after-tax income. Say your marginal federal rate plus state and local taxes comes to 30%; a 4% municipal bond yield then stands equal to a 5.71% taxable yield.

Pull every applicable tax into the calculation, since federal, state, and local income taxes together set the marginal rate that drives the result. Counting federal tax alone is the slip that quietly understates the true tax-equivalent yield. It also helps to note that some municipal bonds fall under the Alternative Minimum Tax (AMT), which can trim their tax-exempt edge for certain high-income earners.

Example: Comparing a Muni Bond to a Corporate Bond

  1. 1 You are considering a municipal bond yielding 3.5% and a corporate bond yielding 5%. Your combined federal and state marginal income tax rate for 2026 is projected to be 28%.
  2. 2 Using the formula: Tax-Equivalent Yield = 3.5% / (1 - 0.28). This calculates to 3.5% / 0.72.
  3. 3 The tax-equivalent yield for the municipal bond is 4.86%.
  4. 4 In this scenario, a 3.5% municipal bond provides the same after-tax return as a taxable bond yielding 4.86%. Since the corporate bond offers 5%, it would provide a slightly higher after-tax return than the municipal bond in this specific example. This demonstrates how a seemingly lower municipal yield can be competitive or even superior to a higher taxable yield after accounting for taxes.

Source: SEC · Last updated: April 2026

Frequently Asked Questions

What is tax-equivalent yield?
Tax-equivalent yield converts a tax-free municipal bond yield to the equivalent taxable yield you would need to earn the same after-tax return. A 4% muni bond equals a 6.15% taxable yield for someone in the 35% tax bracket.
Are municipal bonds worth it for my tax bracket?
Municipal bonds become more attractive in higher tax brackets. In the 32-37% federal brackets, muni bonds often outperform comparable taxable bonds on an after-tax basis. In lower brackets, taxable bonds may offer better returns.
How do I calculate tax-equivalent yield?
Divide the municipal bond yield by (1 minus your marginal tax rate). If you are in the 35% bracket and the muni yields 4%, the tax-equivalent yield is 4% divided by 0.65 = 6.15%.

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