Taxable Equivalent Yield Calculator
Compare a tax-exempt bond yield with the pre-tax yield a taxable investment would need to offer for the same after-tax income.
Inputs
Annual tax-exempt yield. Enter 6 or 6.00 for 6%.
Combined marginal rate applied to the taxable alternative.
Live results
A taxable investment must yield this rate before tax to match the tax-exempt yield.
Calculation breakdown
| Step | Rate | Meaning |
|---|---|---|
| Tax-exempt bond yield | 6.00% | Annual yield not reduced by the selected tax rate |
| Taxable income retained | 70.00% | One minus the marginal tax rate |
| Taxable equivalent yield | 8.57% | Bond yield divided by taxable income retained |
How to use the taxable equivalent yield calculator
What this calculator does. It converts the annual yield of a tax-exempt bond into the pre-tax yield a taxable investment would need to earn to leave the same income after the marginal tax rate entered. It is designed for a quick like-for-like income-rate comparison. It does not determine whether a bond is suitable, estimate price changes, account for default or call risk, or verify that every payment from a particular security is exempt from every tax.
When to use it. Use it when comparing a municipal bond with a taxable corporate bond, certificate of deposit, Treasury security, or bond fund; when testing how a change in your marginal tax rate affects the comparison; or when reviewing whether a quoted taxable yield clears the break-even rate implied by a tax-exempt yield. The SEC's investor education site explains that municipal-bond interest is often, but not always, exempt from federal income tax and may also receive state or local tax treatment depending on the security and investor circumstances in its municipal bonds overview.
How to calculate. The calculator opens with a complete demonstration: a 6.00% bond yield and a 30.00% marginal tax rate. The result and a validated example workbook are available immediately.
- Replace Bond yield with the annual tax-exempt yield you are evaluating.
- Replace Marginal tax rate with the combined rate that would apply to interest from the taxable alternative.
- Read Taxable equivalent yield as the taxable investment's break-even pre-tax yield, then review Yield uplift, Taxable income retained, the summary pills, and the calculation table.
- Select Download Excel to export the current typed inputs and results. Reset clears the demonstration values and calculated content; Download Excel is then disabled until both required fields contain a complete valid state again.
Input guide. Bond yield is required and accepts an ordinary decimal percentage from -100.00% through 100.00%, entered without scientific notation; for example, enter 6 or 6.00 for 6%. A higher bond yield raises the taxable equivalent yield proportionally. A negative value is allowed because a bond yield can be negative, but it produces a negative equivalent yield. Do not enter 0.06 when you mean 6%; this field uses percentage points, not a decimal fraction. Marginal tax rate is required and accepts a percentage from 0.00% up to, but not including, 100.00%; 30 is a realistic example for a 30% rate. A higher tax rate raises the taxable equivalent yield because less taxable interest is retained. Use the marginal rate relevant to the taxable income being compared, not an average tax rate, and do not enter 1 for 100%.
Output guide. Taxable equivalent yield is the estimated pre-tax annual percentage yield needed from a taxable alternative. Zero means a zero tax-exempt yield; a negative value follows from a negative bond yield; very high values near a 100% tax rate reflect the formula's shrinking denominator and should be interpreted cautiously. Yield uplift is the difference between the equivalent taxable yield and the original bond yield, shown in percentage points; it is zero when the tax rate is zero. Taxable income retained is exactly 100% minus the marginal tax rate. The three header pills repeat the current Tax-exempt yield, Tax rate, and Yield uplift. In the Calculation breakdown table, the Step column names each stage, Rate shows the associated percentage, and Meaning explains how that row contributes to the identity.
Worked example. With the startup values, the retained taxable share is 1 - 0.30 = 0.70. Dividing the 6.00% tax-exempt yield by 0.70 gives 8.571428...%, displayed as 8.57%. The yield uplift is 8.571428...% - 6.00% = 2.571428... percentage points, displayed as 2.57 pp. A taxable investment yielding exactly 8.57% would therefore leave approximately 6.00% after a 30% tax on its interest, before other differences and costs.
Formula and interpretation
Taxable equivalent yield = tax-exempt bond yield ÷ (1 - marginal tax rate)
The denominator is the share of taxable interest left after the selected marginal tax rate. At a 0% rate, the equivalent yield equals the bond yield. As the tax rate approaches 100%, the denominator approaches zero and the calculated equivalent yield grows rapidly. The comparison is an algebraic identity based on the rates entered; it is not a forecast of realized return.
FINRA's explanation of bond yield and return notes that yield is a broad return measure and that bond prices and yields move inversely. That distinction matters because this calculator compares quoted annual yields only; it does not model capital gains or losses caused by price changes.
Tax scope and investment limits
Federal tax exemption is security-specific. The IRS provides current background on tax-exempt bonds, while the SEC's Investor.gov bond guidance outlines common bond benefits and risks. Some municipal-bond interest may be subject to state or local tax, alternative minimum tax considerations, or other special rules. Verify the security's official statement and your own tax treatment.
Decision caution: A higher taxable equivalent yield does not make a bond automatically better. Compare credit quality, duration, call provisions, liquidity, reinvestment risk, fees, and after-tax treatment on the same basis. This calculator provides educational estimates and not personalized tax or investment advice.