Municipal bond interest is often free from federal, and sometimes state, income tax. See what a taxable bond would need to yield to actually match that after tax advantage.
Municipal bond interest is generally exempt from federal income tax, and if you buy a bond issued within your own state, it is often exempt from state income tax as well. That tax advantage means a municipal bond's stated yield is not directly comparable to a taxable bond's stated yield. Tax equivalent yield converts the muni's yield into what a taxable bond would need to pay you, after tax, to leave you in the same place. Every slider on this page has a matching number field: drag to explore, or type exact figures if you already know your numbers.
Tax equivalent yield equals the municipal bond yield divided by one minus your combined marginal tax rate. If a muni bond that is exempt from both federal and state tax yields 3.5 percent and your combined marginal rate is 32 percent, the tax equivalent yield is 3.5 divided by 0.68, or about 5.15 percent. A taxable bond would need to yield roughly 5.15 percent to match the after tax return of that municipal bond.
When a bond is exempt from both federal and state tax, this tool combines the two rates using the formula federal rate plus state rate times one minus the federal rate, rather than simply adding them. This reflects that state income tax is generally deductible against federal taxable income in the itemized deduction calculation, which slightly reduces the effective combined burden compared to a simple sum. If your bond is only exempt from federal tax, such as an out of state municipal bond, only the federal rate applies, and the state rate slider has no effect unless the exemption box is checked.
Your marginal rate is the tax rate on your next dollar of income, not your average rate across all your income. For 2026, the federal brackets for a single filer are 10 percent up to $12,400 of taxable income, 12 percent up to $50,400, 22 percent up to $105,700, 24 percent up to $201,775, 32 percent up to $256,225, 35 percent up to $640,600, and 37 percent above that. Use whichever bracket applies to your last dollar of taxable income as your federal marginal rate input. Our Marginal vs. Effective Tax Rate Calculator can help you find your exact bracket.
Municipal bonds, tax equivalent yield, and the tax treatment of different bond types are core content on the SIE exam, Series 7, and Series 65. This same calculation is also used in the tax planning and investment sections of the CFP exam.
Most are, but not all. Some municipal bonds, often called taxable munis, do not carry the federal tax exemption and are issued for purposes that do not qualify under federal tax law. Always confirm a specific bond's tax status before assuming it is tax exempt.
Interest from certain private activity municipal bonds can be subject to the alternative minimum tax for some investors, even though it remains exempt from regular federal income tax. This tool assumes a standard tax exempt municipal bond and does not model AMT exposure.
Because the comparison that matters is after tax return, not the stated yield. For investors in higher tax brackets, a lower stated municipal yield can still produce a higher after tax return than a taxable bond, which is exactly what this calculator is built to show.
Yes. Each slider has a paired number input. Type directly into any gold field to enter a precise figure, and the slider along with all results update immediately.
Tax equivalent yield problems show up directly on FINRA and CFP exams. Practice for free.
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