Tax-Equivalent Yield Calculator
A municipal bond paying 3% tax-free can beat a 4% CD after taxes — or not, depending on your bracket. This calculator converts any tax-free yield into the taxable yield you would need to earn the same after-tax amount.
How to use this calculator
- Enter tax-free (municipal) yield.
- Enter your marginal federal tax rate.
- Your results appear instantly below and update as you change the numbers.
How this calculator works
The tax-equivalent yield is the tax-free yield divided by (1 − your marginal rate). Example: a 3% muni at a 24% rate equals 3% ÷ 0.76 = 3.95% taxable. If your taxable CD or bond can't beat that number, the municipal bond keeps more money in your pocket after federal tax. The same logic runs the other way: a 4.5% CD at a 24% rate nets just 3.42% after tax — which a 3% muni beats.
Frequently asked questions
What about state taxes?
Most states exempt interest from their own municipal bonds but tax out-of-state issues. If state tax applies to the taxable alternative, the tax-equivalent yield is even higher than this calculator shows — in California or New York, a 3% in-state muni can equal a 5%+ taxable CD for top-bracket investors.
Does the 3.8% NIIT change the math?
Yes — for high earners, taxable interest is also subject to the 3.8% Net Investment Income Tax while most muni interest is not. Add NIIT to your rate: at a 24% bracket plus 3.8% NIIT, a 3% muni equals 3% ÷ (1 − 0.278) = 4.15% taxable — the muni looks better the higher your combined rate.
Are all munis tax-free?
Qualified municipal bonds are exempt from federal tax, but some bonds (like private-activity bonds) can trigger the alternative minimum tax, and capital gains from selling munis before maturity are taxable. Check the bond's type before assuming the full exemption.
Do munis belong in my retirement accounts?
Usually not — tax-free income is wasted inside an IRA or 401(k) where everything is already tax-deferred. Munis are best in taxable accounts, where their exemption actually matters.
Is the 3.8% NIIT relevant?
For high earners, yes — muni interest is excluded from the Net Investment Income Tax too, which raises the equivalent yield further if your income exceeds $200,000 (single) or $250,000 (joint).
Disclaimer: Results are estimates for general information only and do not constitute financial, tax, or legal advice. Figures reflect 2026 rules and may change. Always confirm current limits and consult a qualified professional before making decisions. Official figures: IRS.gov · 2026 limits per IRS tax inflation adjustments.