Tax Equivalent Yield Calculator

Category: Investment

- August 14, 2025

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Compare taxable and tax-exempt investments by calculating the equivalent taxable yield required to match the return of a tax-exempt investment.

This calculator helps investors determine whether taxable or tax-exempt investments offer a better after-tax return based on their tax situation.

Investment Information

Tax-Exempt Yield:

Federal Income Tax Rate:

State Income Tax Rate:

Local Income Tax Rate:

Display Options

Decimal Places:

Show calculation steps

About Tax Equivalent Yield

Tax equivalent yield is the pre-tax yield that a taxable bond needs to possess for its yield to be equal to that of a tax-free municipal bond. This calculation is important because it allows investors to fairly compare returns between taxable and tax-exempt investments.

When to Use This Calculator

When comparing municipal bonds to corporate bonds or other taxable investments
When evaluating investment options in different tax brackets
When planning tax-efficient investment strategies
When determining if a tax-exempt investment offers better after-tax returns

Important Considerations

State and local taxes may not apply to in-state municipal bonds
Tax rates can change based on income levels and tax code revisions
Some municipal bonds may be subject to the Alternative Minimum Tax (AMT)
Consider other factors beyond yield, such as credit quality and duration

Understanding Tax Equivalent Yield

Tax equivalent yield (TEY) is an important concept for investors. It helps you figure out what pre-tax yield a taxable bond needs to match the returns of a tax-exempt Investment, like a municipal bond. This comparison is vital for making informed decisions about where to invest your money.

What the Tax Equivalent Yield Calculator Does

The Tax Equivalent Yield Calculator lets you compare taxable and tax-exempt investments easily. By entering your tax-exempt yield and tax rates, you can find out the equivalent yield needed from taxable investments. This can save you a lot of time and confusion when evaluating your options.

Input Information for Accurate Results

To get the best results from the calculator, you’ll need to provide specific details. This includes the tax-exempt yield, federal income tax rate, state income tax rate, and local income tax rate. The more accurate your inputs, the more reliable the output will be.

How to Interpret the Results

Once you enter your data, the calculator shows you the tax equivalent yield, along with Other key figures like the combined tax rate and the tax-exempt yield. Understanding these results helps you decide if a tax-exempt investment is worth it compared to a taxable one.

When to Use the Calculator

When comparing municipal bonds with corporate bonds or other taxable options.
When looking at different investment options across tax brackets.
When planning your investment strategy to minimise taxes.
When trying to figure out if a tax-exempt investment gives better after-tax returns.

Important Factors to Consider

State and local taxes might not apply to in-state municipal bonds.
Tax rates can change based on your income and tax laws.
Some municipal bonds could be affected by the Alternative Minimum Tax (AMT).
Other factors like credit quality and time to maturity should also play a role in your decision.

Using the Calculator for Better Investment Decisions

The Tax Equivalent Yield Calculator serves as a great tool for making smart investment choices. By understanding the calculations involved, you’ll know if your investments are working for you as they should. This clarity can lead to a more successful investment journey.

Getting Started with the Calculator

To start using the Tax Equivalent Yield Calculator, simply enter your yields and tax rates in the designated fields. Once you have all the information in, the calculator does the work for you. You’ll have the insights you need to navigate your investment options confidently.