See the taxable equivalent of any muni bond — and whether it beats your taxable option.
Compute tax-equivalent yield for municipal bonds at your federal and state marginal rates. See the after-tax income on a real principal and pick the winner.
Direct answers to the most common questions, in plain language. Skim if you're in a hurry; dig deeper below.
The taxable yield you'd need to match a tax-free yield after tax.
Tax-equivalent yield (TEY) = tax-free yield ÷ (1 − marginal tax rate). It tells you the pre-tax taxable yield required to match a municipal bond's tax-free yield after federal (and often state) taxes are paid.
When TEY beats the taxable yield available.
If a muni yields 3.5% tax-free and your marginal rate is 32% federal + 5% state, TEY = 3.5% ÷ (1 − 0.37) = 5.55%. If the comparable taxable bond yields less than 5.55%, the muni wins.
Federal yes (mostly); state depends on residency.
General-obligation and revenue munis are typically federal-tax-free. State tax-free only if you buy bonds issued by your own state. Out-of-state munis are state-taxable. Some private-activity munis trigger AMT.
Usually yes — the higher the bracket, the more they help.
TEY scales with your marginal rate. At 12% federal, munis rarely beat taxables. At 32%+, munis usually win on yield. The break-even has moved with the 2017 TCJA — re-check the math at current rates.
The mechanics in short answers — no jargon, no upsell.
Interest from most municipal bonds (state, county, city) is federal-tax-exempt. If you live in the issuing state, also state-exempt.
Treasuries, corporates, and CDs pay interest taxed as ordinary income at your marginal rate. The headline yield isn't what you actually keep.
Tax-equivalent yield = tax-free yield ÷ (1 − marginal rate). It tells you the taxable equivalent of a muni's yield.
Once you have TEY, just pick whichever has the higher number. Above-TEY taxable bonds win. Below-TEY taxable bonds lose to the muni.
Designed so anyone can model their situation in under a minute, with or without a finance background.
Compare tax-free vs taxable on the same after-tax basis.
Triple-tax-free munis (federal + state + local) shown.
The taxable yield that matches your muni after tax.
Use your actual top federal rate for accuracy.
Most munis are AMT-safe; flag private-activity bonds separately.
One screen, one number, clear call.
Everything you might ask before, during, or after using this tool.
Treasuries are state-tax-free but federally taxable. The state benefit is meaningful in high-tax states (CA, NY, NJ, OR). A simple TEY calculation overstates muni advantage vs Treasuries — adjust for the state-exemption Treasuries already provide.
No — inside a Roth or traditional IRA, all bond interest grows tax-deferred or tax-free. There's no advantage to munis in a sheltered account. Hold munis in taxable accounts and corporates/Treasuries in IRAs ("asset location").
Federal: your top bracket on your most recent 1040. Common rates: 22%, 24%, 32%, 35%, 37%. Add your state's top bracket (or 0 if no state tax). The combined rate is what to plug in.
Less than corporate, more than Treasuries. General-obligation bonds backed by full faith and credit of a city/state default rarely. Revenue bonds backed by specific projects have more variation. Check the rating (AAA–AA is very safe).
Alternative Minimum Tax is a parallel tax system that hits some high earners. Most munis are AMT-exempt, but private-activity bonds (PABs — funding airports, hospitals, stadiums) trigger AMT and lose their tax advantage if you owe AMT.
Funds: more diversified, easier to manage, slightly lower yield after fees. Individual: customized to your state for triple-tax-free, no fund fees, but requires research and large enough portfolio to diversify. Most retail investors should use funds.
Because they're tax-advantaged. The market prices in the tax savings — munis are usually 70–85% of comparable Treasury yields. The advantage is on the after-tax line, not the headline.
In the 12% bracket: rarely. At 22% with no state tax: often a wash. At 32%+ with significant state tax: nearly always attractive. The math is mechanical — TEY tells you whether it's worth it for your specific situation.
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TEY = tax-free yield ÷ (1 − combined marginal tax rate).
At 24% federal + 6% state = 30% combined: a 3% muni has TEY = 3% / 0.70 = 4.29%.
A taxable bond yielding less than 4.29% loses to the muni after tax. A taxable bond yielding more wins.
A New York muni is federal AND New York state-exempt for a NY resident — triple tax-free if it's a NYC issue.
Same New York muni held by a Texas resident is only federal-exempt. Lower benefit.
TEY calculations have to specify whether you're using your state's muni or someone else's.
Inside any tax-sheltered account (IRA, 401(k), Roth) — no point.
In low brackets (12% or below) — taxable bonds usually win.
Short horizons — the TEY math doesn't change dramatically across maturities; pick by duration too.
A 5% muni yielding 30% TEY looks great, but if it's a B-rated revenue bond from a sketchy issuer, the risk-adjusted return is worse.
Compare like for like — AAA muni vs AAA corporate, A-rated vs A-rated. Ratings matter more than headline yield.
Two short notes worth reading before you trust any number on this page.
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