Tax Equivalent Yield Calculator
Compare tax-free bond yield against taxable equivalent yields.
Investment Planning · Last reviewed: August 10, 2026
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Overview
The Tax Equivalent Yield Calculator estimates the taxable yield needed to match an entered tax-free bond yield after the entered federal and state marginal tax rates.
It is a focused yield comparison. It assumes the bond interest is exempt from both entered taxes and the taxable alternative is subject to both taxes.
Scope and Use
Use the result as an initial screening comparison only after confirming that the bond's federal and state tax treatment fits the model.
Outside this model
- Bond-specific exemption eligibility, residency, and source rules.
- Private-activity bond treatment and alternative minimum tax.
- Net investment income tax and interactions or deductibility between taxes.
- Capital gains, fees, credit, default, call, duration, liquidity, and reinvestment risk.
- After-tax total return, suitability, recommendations, or investment advice.
Inputs and Outputs
Labels and ordering follow the active Tax Equivalent Yield configuration.
| Field | Format | Meaning | Interpretation |
|---|---|---|---|
| Bond Rateinput | Percentage | The annualized yield treated as exempt from both entered taxes. | Enter a positive percentage and confirm the bond-specific tax treatment separately. |
| Federal Tax Rateinput | Percentage | The federal marginal rate applied to the taxable comparison yield. | Enter a nonnegative percentage; federal and state rates must total less than 100%. |
| State Tax Rateinput | Percentage | The state marginal rate applied to the taxable comparison yield. | The model adds this rate directly to the federal rate and does not model tax interactions. |
| Tax Equivalent Yieldoutput | Percentage | The taxable yield required to equal the modeled after-tax value of the entered tax-free yield. | Displayed as a percentage rounded to two decimal places. |
- Field
- Bond Rateinput
- Format
- Percentage
- Meaning
- The annualized yield treated as exempt from both entered taxes.
- Interpretation
- Enter a positive percentage and confirm the bond-specific tax treatment separately.
- Field
- Federal Tax Rateinput
- Format
- Percentage
- Meaning
- The federal marginal rate applied to the taxable comparison yield.
- Interpretation
- Enter a nonnegative percentage; federal and state rates must total less than 100%.
- Field
- State Tax Rateinput
- Format
- Percentage
- Meaning
- The state marginal rate applied to the taxable comparison yield.
- Interpretation
- The model adds this rate directly to the federal rate and does not model tax interactions.
- Field
- Tax Equivalent Yieldoutput
- Format
- Percentage
- Meaning
- The taxable yield required to equal the modeled after-tax value of the entered tax-free yield.
- Interpretation
- Displayed as a percentage rounded to two decimal places.
Methodology
Percent inputs are converted to decimals. The entered federal and state rates are added, then the tax-free yield is divided by the remaining after-tax share. The combined tax rate must be less than 100%.
Here y is the tax-free bond yield, f is the federal marginal rate, and s is the state marginal rate, all expressed as decimals. The result is converted back to a percentage and rounded to two decimal places.
Assumptions and Limitations
Model assumptions
- The bond yield is exempt from both entered taxes.
- The taxable comparator is fully subject to both entered rates.
- Federal and state marginal rates combine additively.
- Both yields use a comparable basis and time horizon.
Limitations
- No tax-year selection or governed tax-rate defaults are provided.
- The calculator does not determine a bond's tax status.
- Tax interactions, special taxes, costs, and investment risks are excluded.
- The output is a yield comparison, not a user-specific estimate or recommendation.
Selected Sources
- Publication 550 (2025), Investment Income and Expenses
Internal Revenue Service · Retrieved August 10, 2026
The need to verify whether particular state or local obligation interest is tax-exempt and whether special treatment, including private-activity bond rules, applies. It does not support the calculator formula or determine a user-specific bond exemption.
2025 publication; reviewed August 10, 2026