The Tax Equivalent Yield Calculator is an essential financial tool designed to help investors and financial professionals compare taxable and tax-free investment returns on an equal basis. This calculator determines the taxable yield required to match the return of a tax-free investment, accounting for your specific tax bracket and investment circumstances. By providing clear comparisons between different investment vehicles, such as municipal bonds and corporate securities, users can make more informed decisions about their investment strategies. Financial advisors and investment professionals will find this tool particularly valuable when explaining investment options to clients or optimizing portfolio allocations. Whether you’re evaluating municipal bonds or other tax-advantaged investments, this calculator helps you understand the true comparative value of different investment options. Start using our Tax Equivalent Yield Calculator today to make more informed investment decisions based on after-tax returns.
Compare a tax-free bond’s yield with a taxable one in seconds. Enter the bond’s yield, your marginal tax rate, press “Calculate”, and the Tax-Equivalent Yield (TEY) appears. TEY = Yield ÷ (1 – Tax Rate). For example, a 3.10 % muni bond equals a 3.78 % taxable bond at an 18 % bracket. The U.S. top federal rate is 37 % (IRS, 2023).
The calculator shows the taxable yield a bond must earn to equal a tax-free yield. Divide the tax-free rate by one minus your marginal tax rate; e.g., 5.10 % ÷ (1 – 0.30) = 7.29 %. The top U.S. marginal income-tax rate is 37 % (IRS, 2023). Use the tool to see if a taxable bond really beats your municipal bond after taxes.
