Tax-Equivalent Yield Calculator
Convert a tax-exempt bond yield to its tax-equivalent yield with federal and state rates you enter, and compare it with a taxable alternative after tax.
Interactive calculator · Method TAX-EQUIVALENT-YIELD-1.0 · Last reviewed: 2026-11-04
Calculate your scenario
Tax-equivalent yield = tax-exempt yield after any tax it still owes ÷ (1 − combined rate).
Your inputs
Default worked example. Edit the inputs to calculate your scenario.
Default worked example
TEY = 3.5% ÷ (1 − 29%) = 4.93%; the taxable 5% keeps 3.55% after the combined rate.
How to use the calculator
Enter the tax-exempt yield, your federal and state marginal rates, whether the bond is also state-exempt, how to combine the rates, and the yield of the taxable bond you are comparing.
What the result means
A 3.5% in-state muni at an entered 24% federal and 5% state rate (29% combined) matches a 4.93% taxable yield; a 5% taxable bond keeps 3.55% after tax, slightly more.
Formula and units
Tax-equivalent yield = tax-exempt yield after any tax it still owes ÷ (1 − combined rate). Combined rate = federal + state, or federal + state × (1 − federal) when you choose the state-deductible convention. If the bond is exempt from federal tax only, its yield is first reduced by the state rate (state × (1 − federal) under the deductible convention). The taxable alternative after tax = its yield × (1 − combined rate).
Worked examples
3.5% in-state muni, 24% federal and 5% state: Tax-exempt bond yield: 3.5 % per year; Federal marginal rate (enter yours): 24 %; State marginal rate (enter yours): 5 %; Taxable alternative yield: 5 % per year; Tax-exempt bond is exempt from: both; Combine federal and state rates as: add.
Example result: Tax-equivalent yield: 4.93%; Combined rate used: 29%; Tax-exempt bond after-tax yield: 3.5%; Taxable alternative after-tax yield: 3.55%; Higher after-tax yield: Taxable alternative by 0.05 points.
3% out-of-state muni, 32% federal, 6% state deductible: Tax-exempt bond yield: 3 % per year; Federal marginal rate (enter yours): 32 %; State marginal rate (enter yours): 6 %; Taxable alternative yield: 4.5 % per year; Tax-exempt bond is exempt from: fed; Combine federal and state rates as: deduct.
Example result: Tax-equivalent yield: 4.502%; Combined rate used: 36.08%; Tax-exempt bond after-tax yield: 2.878%; Taxable alternative after-tax yield: 2.876%; Higher after-tax yield: Tax-exempt bond by 0.001 points.
Limitations and common mistakes
Arithmetic with the rates you enter only. It does not determine whether a bond is tax-exempt for you, and it ignores the alternative minimum tax, net investment income tax, local taxes, phase-outs, de minimis rules, purchase premiums or discounts, and capital gains. Use your own marginal rates; the defaults are examples.
Using your average (effective) tax rate instead of the marginal rate on the next dollar of interest, which understates the tax-equivalent yield.
Sources and assumptions
Method TAX-EQUIVALENT-YIELD-1.0; last formula review 2026-11-04. Sources and their supported claims. Calculation methodology.