Free municipal bond tey calculator
Find the taxable yield that matches a muni bond's tax-free return — enter the muni yield and your federal tax bracket, updated live, as you type.
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Hypothetical projection. Excludes taxes, inflation, and fees. Actual investment returns vary.
Results are estimates. Consult a professional.
How the municipal bond tax-equivalent yield calculator works
Interest on most municipal bonds is exempt from federal income tax (and often state tax for in-state bonds). Because investors in high tax brackets keep more of their muni income than they would from a taxable bond, munis can afford to offer a lower stated yield and still deliver a better after-tax return. The tax-equivalent yield (TEY) converts the muni's stated yield into the equivalent pre-tax yield needed from a fully taxable bond to match it.
The formula divides the muni yield by the after-tax factor (1 − marginal tax rate). The higher your tax bracket, the bigger the uplift — munis are most valuable to investors in the 32%, 35%, and 37% federal brackets.
Worked example: 3.5% muni vs a 4.9% taxable bond at 32% bracket
Jordan is in the 32% federal tax bracket and is comparing a 3.5% municipal bond (federal tax-exempt) with a 4.9% taxable corporate bond. The muni looks lower on paper, but Jordan wants to compare apples to apples on an after-tax basis.
Tax-equivalent yields: muni rates vs federal tax brackets
The table below shows the tax-equivalent yield for three common muni yield levels across the four highest federal income tax brackets. Any taxable bond with a yield below the TEY in your row would deliver less income after tax than the muni.
| Muni Yield | 22% Bracket | 24% Bracket | 32% Bracket | 37% Bracket |
|---|---|---|---|---|
| 3.0% | 3.85% | 3.95% | 4.41% | 4.76% |
| 4.0% | 5.13% | 5.26% | 5.88% | 6.35% |
| 5.0% | 6.41% | 6.58% | 7.35% | 7.94% |
Source: Formula — TEY = muni yield ÷ (1 − federal marginal rate). Federal rates only; add your state marginal rate to the denominator for state-exempt munis. Based on 2024 ordinary income tax brackets.
Tips for evaluating municipal bonds
The TEY formula is powerful but incomplete on its own. Apply these principles before deciding whether a muni beats a taxable alternative.
- Include your state income tax rate — Many states exempt interest on their own municipal bonds. If you're in California at 9.3% state rate and buy a California muni, your combined rate in the denominator rises, making the TEY even higher. Always check whether your state taxes out-of-state munis.
- Munis rarely make sense below the 24% bracket — The tax benefit is modest in lower brackets, and munis typically offer lower credit quality per dollar of yield than investment-grade corporate bonds. Compute the TEY before assuming a muni is a bargain.
- Watch for the Alternative Minimum Tax — Private-activity bonds (a subset of munis) may generate AMT preference income. If you are subject to AMT, the tax benefit shrinks. Look for bonds specifically labeled 'non-AMT'.
- Compare after all fees — Muni bond funds charge expense ratios that reduce your effective yield. Compute the TEY on the fund's net yield, not the gross portfolio yield, to get a fair comparison.
- Credit risk is real in munis — General obligation bonds backed by taxing power are generally safer; revenue bonds depend on the cash flows of a specific project. Check Moody's and S&P ratings and look for bonds rated A or higher unless you have deep credit-analysis skills.
Accuracy and limitations
The tax-equivalent yield formula is a straightforward mathematical conversion. Its accuracy depends entirely on using the correct marginal tax rate. The calculator uses federal marginal rates only; if your state also taxes municipal bond interest (or conversely if the muni is state-exempt), the effective rate in the denominator changes. The formula also assumes the tax benefit applies to the full interest amount — certain private-activity bonds subject to AMT reduce the effective benefit. Tax law changes can alter muni exemptions; verify current rules with a tax advisor.
Not financial advice — consult a financial professional for your specific situation.
Key municipal bond terms
About this municipal bond tax-equivalent yield calculator
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