Skip to content
ENExplore Calculators

Municipal Bond Tax Equivalent Yield Calculator

Work out municipal bond tax equivalent yield instantly with clear inputs, formula shown and shareable results.

About Municipal Bond Tax Equivalent Yield Calculator

A tax-free yield must be grossed up by dividing by one minus your marginal rate to be comparable with taxable bonds. The higher your tax bracket, the more valuable the exemption — which is why municipal bonds appeal mainly to top-rate investors.

Formula

Tax-equivalent yield

TEY = tax-free yield / (1 - marginal tax rate)

Worked example

With the default values below, Municipal Bond Tax Equivalent Yield Calculator returns Tax-Equivalent Yield of 6.1765%. Change any input above and every figure here is recalculated in your browser.

Inputs used

Tax-Free Bond Yieldaccepts 0–100 %
4.2 %
Marginal Tax Rateaccepts 0–60 %
32 %
Comparable Taxable Yieldaccepts 0–100 %
5.6 %

Results

Tax-Equivalent Yield
6.1765%
Taxable Bond Yield After Tax
3.8080%
Advantage Of The Tax-Free Bond
0.3920%
Which Is Better
The tax-free bond wins after tax

Step by step

  1. 1Values used
  2. 2Tax-equivalent yield
  3. 3Tax-Equivalent Yield= 6.1765
  4. 4Taxable Bond Yield After Tax= 3.8080
  5. 5Advantage Of The Tax-Free Bond= 0.3920
  6. 6Which Is Better= The tax-free bond wins after tax

Assumptions and limits

  • The result is derived only from the 3 inputs listed above. Anything not among them is not part of the calculation.
  • In particular, this calculator does not take inflation, fees or charges or compounding frequency into account.
  • Figures are rounded for display to 4 decimal places, so totals built from several rounded parts can differ slightly from the unrounded arithmetic.
  • Figures are estimates for planning only. Market returns are not guaranteed, and rates, limits and tax rules change. This is not financial or tax advice — speak to a qualified adviser before acting.
  • This is an estimate for general information and not professional financial, tax or legal advice. See the full disclaimer for the limits that apply to this kind of calculator.

How these calculators are built and tested is described on the Methodology page. If a figure looks wrong, please report it.

Figures are estimates for planning only. Market returns are not guaranteed, and rates, limits and tax rules change. This is not financial or tax advice — speak to a qualified adviser before acting.

Frequently Asked Questions

Why divide rather than subtract?

Because you need the pre-tax yield that leaves the tax-free yield after tax, which is a division.

Do these bonds carry credit risk?

Yes. Municipal issuers can and do default, so the exemption is not a substitute for credit analysis.

Related Calculators

Municipal Bond Tax Equivalent Yield Calculator | Calcrivo