Municipal Bond Tax Equivalent Yield
Income generated from municipal bond coupon payments are not subject to federal income tax and often are exempt from state taxes. Use this calculator to estimate the tax-equivalent yield (TEY) for a municipal bond.
How the municipal bond tax equivalent yield calculator works
It grosses up the tax-free muni yield by your combined federal and state tax rate to find the taxable yield that would leave you with the same after-tax income.
Worked example: with municipal bond yield of 3.50%, federal tax rate of 24.00% and state tax rate (if also exempt) of 5.00%, the municipal bond tax-equivalent yield calculator shows taxable-equivalent yield of 4.93%.
- Muni yield (tax-free)
- 3.50%
- Combined tax rate
- 29%
- Taxable-equivalent yield
- 4.93%
- Yield advantage
- 1.43%
The formula
Taxable-equivalent yield = muni yield ÷ (1 − combined tax rate).
Results are estimates for educational purposes and are not financial advice. Confirm exact figures with your lender, plan administrator or advisor.
Questions about the municipal bond tax equivalent yield
What is tax-equivalent yield?
The yield a taxable bond would need to match a tax-free muni after tax. Because munis escape tax, a lower muni yield can beat a higher taxable one — this shows by how much.
Are all municipal bonds tax-free?
Interest is generally exempt from federal tax, and from state tax too if you buy bonds from your own state. Some munis are taxable, and capital gains are not exempt.
Who benefits most from munis?
High earners in top tax brackets, since the value of the tax exemption rises with your rate. For low brackets, taxable bonds with higher yields may net more.
Is the Municipal Bond Tax Equivalent Yield free to use?
Yes. Every calculator on FinCalculators is completely free, with no sign-up, login or paywall. You can run as many scenarios as you like.