Municipal Bond Tax-Equivalent Yield Calculator

Tax-equivalent yield (TEY) = municipal bond yield / (1 - marginal tax rate). It converts a tax-free muni yield into the yield a taxable bond would need to match it after tax, so you can compare the two on equal footing. Defaults: 3.5% muni yield at a 32% marginal tax rate gives a 5.15% tax-equivalent yield.

Interest from most municipal bonds is exempt from federal income tax (and sometimes state tax if you live in the issuing state), so investors accept a lower stated yield in exchange for not owing tax on the interest.

Use your marginal federal income tax bracket, since that is the rate that would apply to the last dollar of taxable bond interest you would otherwise owe. This page does not add state tax on top; do that manually if your state also exempts the muni.

Compare the tax-equivalent yield directly against yields on taxable bonds (Treasuries, corporates, CDs) of similar credit quality and maturity. If a taxable bond yields more than the tax-equivalent yield shown here, it wins on an after-tax basis for you.