Taxable Equivalent Yield Calculator
Calculate the taxable equivalent yield of tax-free municipal bonds and compare investment returns
Calculate Taxable Equivalent Yield
Annual yield of the tax-free municipal bond
Your highest tax bracket rate (federal + state)
Taxable Equivalent Yield Results
Formula used: TEY = Bond Yield ÷ (1 - Tax Rate)
Calculation: 0% ÷ (1 - 0%) = 0.00%
Investment Comparison
Example Calculation
Municipal Bond Investment
Investment: Municipal bond
Tax-free yield: 4.5%
Investor's marginal tax rate: 32%
Investment amount: $100,000
Calculation
TEY = 4.5% ÷ (1 - 32%)
TEY = 4.5% ÷ 0.68
TEY = 6.62%
Interpretation: A taxable investment would need to yield 6.62% to match this municipal bond's after-tax return.
2024 Federal Tax Brackets
Single filer rates. Add state taxes for total marginal rate.
Tax-Free vs Taxable Bonds
Tax-Free Bonds
- • Municipal bonds
- • Treasury bonds (federal tax-free)
- • Lower nominal yields
- • Higher after-tax returns
Taxable Bonds
- • Corporate bonds
- • High-yield bonds
- • Higher nominal yields
- • Subject to income tax
Investment Tips
Higher tax brackets benefit more from tax-free bonds
Consider both federal and state tax rates
Municipal bonds from your state are often triple tax-free
Compare TEY to other investment options
Understanding Taxable Equivalent Yield
What is Taxable Equivalent Yield?
Taxable equivalent yield (TEY) is the pre-tax yield that a taxable bond would need to offer to equal the after-tax yield of a tax-free municipal bond. It helps investors compare tax-free and taxable investments on an equal basis.
When to Use This Calculator?
- •Comparing municipal bonds to corporate bonds
- •Evaluating tax-free investment options
- •Portfolio optimization for high earners
- •Tax planning and investment decisions
Formula Explanation
TEY = Bond Yield ÷ (1 - Tax Rate)
- TEY: Taxable Equivalent Yield (%)
- Bond Yield: Tax-free bond yield (%)
- Tax Rate: Marginal tax rate (as decimal)
Important: Use your marginal tax rate (highest bracket), not average tax rate. Include both federal and state taxes if applicable.
Low Tax Bracket (12%)
Municipal bonds may not provide significant advantage. Consider taxable bonds with higher yields.
Medium Tax Bracket (22-24%)
Municipal bonds start becoming attractive. Compare TEY carefully with taxable alternatives.
High Tax Bracket (32%+)
Municipal bonds often provide superior after-tax returns. Strong candidates for tax-free investing.