How to use the tax-equivalent yield calculator
The Tax-equivalent yield tool starts from a municipal bond.
- Enter the muni’s yield. Use the yield to maturity, or the yield to worst for a callable bond, from your broker’s quote. The coupon rate is not the yield unless the bond trades at par.
- Choose your federal bracket for 2026. The hint under the list shows the taxable income range for single and joint filers. Use the rate on your last dollar of income, not your average rate.
- Enter your state income tax rate, including any city income tax.
- Say where the bond was issued. In-state bonds are usually free of state tax too; out-of-state bonds are not.
- Say whether you deduct state tax on your federal return. Most people take the standard deduction, so the default is No.
The After-tax yield tool goes the other way: enter a taxable yield, such as a corporate bond or CD, to see what you keep and the muni yield that would match it.
The formula
A worked example
You are in the 24% bracket and pay 5% state tax. An in-state muni yields 3.2%. The combined rate on taxable interest is 29.00%, so the tax-equivalent yield is 4.51%. A corporate bond of similar quality and maturity would need to yield more than that to leave you better off.
Ignoring state tax, the figure would be 4.21%, so the state exemption adds 0.30%. In the after-tax tool, a 4.8% taxable bond keeps 3.41%, more than the muni’s 3.2%, so in this example the taxable bond wins by a small margin.
How your situation changes the answer
| Situation | Tax-equivalent yield |
|---|---|
| In-state bond, no state deduction (default) | 4.51% |
| In-state bond, state tax deducted on federal return | 4.43% |
| Out-of-state bond (state tax applies) | 4.28% |
| No state income tax | 4.21% |
Buying out of state gives up the state exemption, which lowers the muni’s value to 4.28%. Residents of high-tax states therefore tend to hold their own state’s bonds, accepting less diversification for the extra exemption. Residents of states without an income tax get no state benefit from munis at all.
The federal bracket is the biggest lever. The table under the calculator shows the same bond across every bracket. Lower brackets rarely justify a muni’s lower yield; the higher brackets often do.
Before you compare yields
- Match credit quality and maturity. A tax-equivalent yield only makes sense against a taxable bond with similar default risk, maturity and call features.
- Use yields, not coupons. Bonds bought above or below par have yields different from their coupons.
- Expect your bracket to change. A muni held for twenty years should be judged on the bracket you expect over that period, not only this year.
What this calculator does not include
- Alternative minimum tax. Interest on some private activity bonds is a preference item for the AMT.
- Capital gains and market discount. Selling a muni at a gain, or buying it below par, can create taxable income.
- Social Security taxation. Muni interest counts in the income test that decides how much of your Social Security benefit is taxed.
- Local income taxes unless you add them to the state rate.
- Phase-outs and credits that make your true marginal rate differ from your bracket rate.