# Tax Equivalent Yield Calculator

URL: https://speedycalculator.com/calculators/finance/taxable-equivalent-yield/
Last updated: 2026-10-25

> The tax equivalent yield calculator converts the yield on a tax-free municipal bond into the taxable yield you would need to earn the same after tax, given your federal (and state) tax rates.

## Inputs

- Tax-free bond yield (%)
- Federal marginal tax rate (%)
- State tax rate (if also exempt) (%)

## Results

- Combined tax rate
- Tax-equivalent yield
- Tax-equivalent yield (federal tax only)

## Formula

```
Tax-equivalent yield = tax-free yield ÷ (1 − tax rate)
Combined rate = federal + state × (1 − federal) if state tax is deductible, otherwise federal + state
```

## Explanation

Interest on most U.S. municipal bonds is exempt from federal tax, and from state tax for in-state bonds. The higher your tax bracket, the more a muni's yield is worth.

### How to use the Tax Equivalent Yield Calculator

- **Tax-free bond yield**
- **Federal marginal tax rate**
- **State tax rate (if also exempt)**

Results update as you type, and every field accepts the units shown in its menu.

### How it works

Enter the tax-free yield, your federal marginal tax rate and state tax rate (if the bond is also state tax-exempt).

### Tips

- Check whether rates are quoted annually, semi-annually or per period.
- Bond prices and yields move in opposite directions – a higher yield means a lower price.
- Use the bond's clean price (without accrued interest) for yield calculations.
- Credit ratios are most useful when tracked over several years.

### Common mistakes to avoid

- Confusing the coupon rate with the yield.
- Using the face value instead of the market price.
- Forgetting that callable bonds may be redeemed before maturity.

### Inputs explained

FieldWhat to enterTax-free bond yieldIn %Federal marginal tax rateIn %State tax rate (if also exempt)In %

### What each result means

- **Combined tax rate** = [Federal marginal tax rate] + [State tax rate (if also exempt)] - [Federal marginal tax rate]×[State tax rate (if also exempt)]÷100
- **Tax-equivalent yield** = [Tax-free bond yield]÷(1 - [Combined tax rate]÷100)
- **Tax-equivalent yield (federal tax only)** = [Tax-free bond yield]÷(1 - [Federal marginal tax rate]÷100)

### Example values

How the main result changes when **Tax-free bond yield** changes and everything else stays at the example values above:

Tax-free bond yield (%)Tax-equivalent yield (%)1.752.712.634.063.55.424.386.775.258.13710.84

## Worked example

Inputs — Tax-free bond yield: 3.5 %; Federal marginal tax rate: 32 %; State tax rate (if also exempt): 5 %.

Results — Combined tax rate = 35.4 %; **Tax-equivalent yield = 5.42 %**; Tax-equivalent yield (federal tax only) = 5.15 %.

## FAQ

**What is the tax-equivalent yield?**
The taxable yield that matches a tax-free yield after tax.

**Are municipal bonds always tax-free?**
Federal tax-free in most cases; state-exempt usually only for in-state bonds.

**Who benefits most from munis?**
Investors in high tax brackets.

**What formula does the Tax Equivalent Yield Calculator use?**
Tax-equivalent yield = tax-free yield ÷ (1 − tax rate).


## Sources

- [MSRB – Municipal bond basics](https://www.msrb.org/)