Tax-Equivalent Yield Calculator -

Tax-Free Investment Yield (%): Enter the annual yield of the tax-free investment.

Your Marginal Tax Rate (%): Enter your combined federal and state marginal tax rate, if applicable.

Yield Comparison:

How to Use This Tax-Equivalent Yield Calculator

Enter the Tax-Free Yield:
- In the “Tax-Free Investment Yield (%)” field, input the stated annual yield of the tax-free investment you are considering (e.g., a municipal bond). Enter this as a percentage, like 3.0 for 3%.
Enter Your Marginal Tax Rate:
- In the “Your Marginal Tax Rate (%)” field, enter your marginal tax rate. This is the rate of tax you pay on your next dollar of taxable income.
- If your investments are subject to both federal and state income taxes, you should ideally use your combined marginal tax rate. For example, if your federal rate is 22% and your state rate is 5%, you might enter 27. (Note: State tax deductibility on federal returns can complicate this; for simplicity, this calculator uses a single rate input. Consult a tax advisor for precise combined rates.)
Calculate: Click the “Calculate Tax-Equivalent Yield” button.
Review Your Results:
- The “Yield Comparison” section will display:
  - Tax-Free Yield: This echoes the yield you entered for the tax-free investment.
  - Your Marginal Tax Rate: Confirms the tax rate you entered.
  - Tax-Equivalent Yield (TEY): This is the crucial number. It shows the yield a taxable investment would need to earn to provide the same after-tax return as the tax-free investment, given your tax rate.
  - Additional Yield Needed from Taxable Investment: This shows the difference between the TEY and the tax-free yield, highlighting how much more a taxable investment must earn to match up.
- A **bar chart** will visually compare the Tax-Free Yield directly against the calculated Tax-Equivalent Yield, making the difference clear.
- If there’s an issue with your inputs (e.g., tax rate too high or invalid numbers), an error message will appear.
Example:
- If a tax-free municipal bond offers a 3% yield, and your marginal tax rate is 25%:
- The calculator will show a Tax-Equivalent Yield of 4.00%.
- This means a taxable investment would need to yield 4.00% to give you the same after-tax return as the 3% tax-free bond.
Clear: Click “Clear Inputs & Results” to reset for a new calculation.

Important: This calculator is for informational purposes and helps illustrate the impact of taxes on investment returns. It does not provide investment advice. Always consider your overall financial situation, risk tolerance, and consult with a qualified financial advisor and tax professional before making investment decisions.

Maximize Your Investment Returns: A Deep Dive into the Tax-Equivalent Yield Calculator

The Investor’s Dilemma: Taxable vs. Tax-Free – Which Yield Wins?

Picture this: you’re evaluating two investment opportunities. One offers a seemingly attractive yield, but it’s fully taxable. The other boasts a lower yield, but its income is completely tax-free. How do you make an apples-to-apples comparison? Just looking at the stated yields can be misleading because taxes can take a significant bite out of your returns from taxable investments. This is precisely where understanding a concept called “tax-equivalent yield” becomes invaluable, and a tax-equivalent yield calculator is the tool that brings this concept to life, helping you see the true picture.

It’s a common scenario, especially when considering investments like municipal bonds (which are often tax-free at the federal level, and sometimes state and local too) versus corporate bonds or high-yield savings accounts. Without factoring in your personal tax situation, you might be leaving money on the table or making a less-than-optimal choice. Let’s unravel how to make smarter comparisons.

What in the World is Tax-Equivalent Yield (TEY)?

A Tax-Equivalent Yield (TEY) is the yield a taxable investment would need to achieve to equal the yield of a comparable tax-free investment, once taxes are taken into account. In simpler terms, it tells you what a taxable bond (or other taxable investment) needs to pay before taxes for you to end up with the same amount of money in your pocket as you would from a tax-free bond.

This calculation is crucial because it levels the playing field. If a tax-free municipal bond yields 3%, and a taxable corporate bond yields 4%, which is better? It depends entirely on your marginal tax rate. A tax-equivalent yield calculator does this critical calculation for you, providing clarity for your investment decisions.

Spotlight on Investment Types: Taxable vs. Tax-Free

To use a TEY calculator effectively, it helps to understand the basic categories:

Tax-Free Investments: The most common example in the United States is **municipal bonds** (often called “munis”). These are debt securities issued by states, cities, counties, and other governmental entities to fund public projects. The interest income from municipal bonds is typically exempt from federal income tax. If you buy munis issued in your own state of residence, the interest may also be exempt from state and local taxes (a “triple tax-free” scenario).
Taxable Investments: This category is much broader and includes:
- Corporate Bonds: Debt issued by companies.
- Certificates of Deposit (CDs) and Savings Accounts: Interest earned is generally taxable.
- Government Bonds (like U.S. Treasury bonds): Interest is taxable at the federal level but usually exempt from state and local taxes. (Our calculator is simplest when comparing fully tax-free vs. fully taxable at your marginal rate).
- Dividend Stocks: Dividends can be “qualified” (taxed at lower capital gains rates) or “non-qualified” (taxed at ordinary income rates).
- Real Estate Investment Trusts (REITs): Dividends are often taxed as ordinary income.

A tax-equivalent yield calculator is most directly applicable when comparing a specifically tax-exempt investment (like a muni) with a fully taxable fixed-income investment (like a corporate bond or CD).

The Deciding Factor: Your Marginal Tax Rate

The “magic ingredient” in the tax-equivalent yield calculation is your **marginal tax rate**. This isn’t your average tax rate; it’s the rate of tax you pay on the *next dollar* of taxable income you earn. It’s called “marginal” because it applies to the margin, or edge, of your income.

Your marginal tax rate is determined by your taxable income and the tax brackets set by the federal government and, if applicable, your state government. The higher your marginal tax rate, the more valuable tax-free income becomes, and thus, the higher the tax-equivalent yield will be for a given tax-free bond. Someone in a 35% marginal tax bracket will see a much greater benefit from a tax-free investment than someone in a 12% bracket. Our tax-equivalent yield calculator will clearly demonstrate this effect.

When using the calculator, if you’re subject to both federal and state income taxes, you’ll generally want to use your combined marginal tax rate for the most accurate comparison against a bond that is taxable at both levels. (Calculating this perfectly can be complex due to things like the state and local tax (SALT) deduction limit, so a tax advisor can be helpful for pinpoint accuracy, but a good estimate of your combined top rates is often sufficient for the calculator.)

The Simple Formula Driving the Calculator

The mathematics behind a tax-equivalent yield calculator isn’t rocket science. The formula is:

Tax-Equivalent Yield (TEY) = Tax-Free Yield / (1 - Marginal Tax Rate)

Let’s illustrate with an example:

Suppose a tax-free municipal bond offers a Tax-Free Yield of 2.5%.
Your combined Marginal Tax Rate is 30%.

First, convert the percentages to decimals: Tax-Free Yield = 0.025, Marginal Tax Rate = 0.30. Then, plug them into the formula: TEY = 0.025 / (1 - 0.30) TEY = 0.025 / 0.70 TEY ≈ 0.0357

Converting back to a percentage, the Tax-Equivalent Yield is approximately 3.57%. This means a taxable investment would need to offer a yield of 3.57% to provide the same after-tax return as the 2.5% tax-free municipal bond for an investor in the 30% marginal tax bracket.

Using Our Tax-Equivalent Yield Calculator: Step-by-Step

Our calculator makes this process incredibly straightforward:

Input the Tax-Free Yield (%): Enter the yield of the tax-exempt investment you’re considering.
Input Your Marginal Tax Rate (%): Enter your estimated combined marginal income tax rate.
Click “Calculate”: That’s all there is to it!

The calculator will instantly show you the Tax-Equivalent Yield. The results section will also typically reiterate your inputs and explicitly state the additional yield a taxable investment would need to offer to match the tax-free option on an after-tax basis. The accompanying bar chart provides a quick visual comparison.

“Don’t let taxes silently erode your investment returns. A tax-equivalent yield calculator shines a light on the true comparative value of your investment choices.”

Key Benefits: Why Every Savvy Investor Needs This Tool

Informed Decision-Making: It removes the guesswork by providing a clear, quantitative comparison between taxable and tax-free investments.
True Apples-to-Apples Comparison: Allows you to evaluate different types of bonds and other income-producing assets on a level playing field, considering their after-tax potential.
Maximizing After-Tax Returns: Helps you identify opportunities that might offer a lower headline yield but result in more money in your pocket after taxes are paid.
Strategic Tax Planning: Can be a useful tool in your overall tax planning strategy, helping you decide how to allocate assets between taxable and tax-advantaged accounts or investments.
Clarity for Different Tax Brackets: Quickly see how the attractiveness of a tax-free investment changes based on different marginal tax rates.

Who Stands to Benefit Most?

While any investor comparing fixed-income options can use a tax-equivalent yield calculator, it’s particularly beneficial for:

Investors in Higher Income Tax Brackets: The higher your marginal tax rate, the greater the “boost” a tax-free investment receives when its yield is converted to a TEY. What might seem like a small tax saving for a lower-bracket investor can be substantial for someone in a top bracket.
Individuals Considering Municipal Bonds: This is the classic use case. Munis are the most common type of tax-free investment available to individual investors.
Retirees or Those Seeking Stable Income: For investors focused on generating predictable income, optimizing for after-tax yield is crucial for preserving purchasing power.

Important Caveats and Considerations

While a tax-equivalent yield calculator is a powerful tool, keep these points in mind:

Market Risks Still Apply: TEY calculations don’t account for other investment risks like credit risk (the issuer defaulting), interest rate risk (bond prices falling if rates rise), or liquidity risk.
Tax Laws Can Change: Marginal tax rates and the tax treatment of certain investments can be altered by new legislation.
Alternative Minimum Tax (AMT): In some rare cases, interest from certain “private activity” municipal bonds could be subject to the AMT for some taxpayers.
State-Specific Rules: While U.S. Treasury bond interest is federally taxable, it’s typically state tax-exempt. Municipal bond interest is federally tax-exempt, but only tax-exempt at the state/local level if you buy bonds issued within your state of residence. These nuances mean you need to be specific about what you’re comparing. The calculator is most direct for comparing a fully tax-free muni (federal & state) to a fully taxable investment.
It’s Not Investment Advice: The calculator provides a mathematical conversion. It’s one piece of information to consider alongside your overall financial goals, risk tolerance, and diversification strategy. Always consult with a qualified financial advisor for personalized advice.

Unlock Smarter Investing with Tax-Aware Comparisons

In the quest for optimal investment returns, understanding the impact of taxes is non-negotiable. A tax-equivalent yield calculator demystifies one of the key comparisons you’ll face, particularly in the fixed-income world. By enabling you to see beyond headline yields and evaluate opportunities on a true after-tax basis, it empowers you to make more informed, strategic, and potentially more profitable investment decisions. Take a moment to run the numbers – you might be surprised what you discover about your investment options!