Tax Equivalent Yield Calculator
Calculate the taxable yield needed to match the after-tax return of a tax-free investment. Compare municipal bonds vs taxable bonds.
Published by:
isCalculator Editorial Team
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How to use this tool?
How to Use the Tax Equivalent Yield Calculator
This calculator helps you compare the yield of a tax-free investment (like a municipal bond) with a taxable investment by factoring in your marginal tax rate.
- Step 1: Enter the Tax-Free Yield (%) — the annual return of the tax-free investment (e.g., 3.5 for 3.5%).
- Step 2: Enter your Marginal Tax Rate (%) — your highest federal (and state, if applicable) income tax rate (e.g., 24 for 24%). This must be between 0 and 100, but cannot be exactly 100.
- Step 3: Click "Calculate".
Result: The Tax Equivalent Yield shows what a taxable investment would need to yield to match the after-tax return of the tax-free investment. The formula used is:
Tax Equivalent Yield = Tax-Free Yield / (1 - Tax Rate)
All inputs must be positive numbers. Negative yields or a 100% tax rate will show an error.
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Frequently Asked Questions
Tax equivalent yield is the pretax yield that a taxable bond must offer to equal the after-tax yield of a tax-free municipal bond. It helps investors compare bonds across different tax brackets.
Enter the tax-free yield (e.g., from a municipal bond) and your marginal tax rate. Click calculate to see the equivalent taxable yield you'd need to earn the same after-tax return.
Your marginal tax rate determines how much of your investment income is paid in taxes. A higher tax rate makes tax-free bonds more attractive, lowering the equivalent taxable yield needed.
