Compare municipal bond and taxable bond yields on an after-tax basis. Enter your federal and state tax rate for instant tax-equivalent yield. 2026 OBBBA bracket
Compare taxable vs tax-free bond yields.
The tax-equivalent yield (TEY) calculator tells you what yield a taxable bond, CD, or savings account must earn to match the after-tax return of a tax-exempt municipal bond — putting munis and taxable investments on a true apples-to-apples basis. Enter your muni bond yield, federal marginal tax rate, and state income tax rate for an instant comparison. Updated for 2026 One Big Beautiful Bill Act (OBBBA) tax brackets.
The formula: TEY = Tax-Free Yield ÷ (1 − Combined Marginal Tax Rate). Combined rate = Federal marginal rate + State income tax rate (for double tax-free in-state bonds) + 3.8% NIIT (if MAGI exceeds $200K single / $250K MFJ).
2026 break-even TEY table — 4% municipal bond yield:
Key rules of thumb:
Comparing munis to Treasuries: Treasury bonds are taxable at the federal level but exempt from state and local income tax. To compare fairly to a muni, adjust the Treasury yield: After-State-Tax Treasury Yield = Treasury Yield × (1 − State Tax Rate). Example: 5% Treasury, 8% state tax → 4.60% after-state-tax yield. Compare this directly to the muni yield. If you live in a state with no income tax (FL, TX, WA, NV, WY, SD, AK), Treasuries and munis have the same state treatment — the federal comparison alone determines which wins.
This calculator is for educational purposes only and does not constitute tax, legal, or investment advice. Tax laws may change. Consult a qualified tax advisor for personalised guidance regarding your specific situation.
Tax-equivalent yield (TEY) is the pre-tax return a taxable bond must earn to equal the after-tax return of a tax-free muni. Formula: TEY = Tax-Free Yield ÷ (1 − Marginal Tax Rate). Example: 4% muni, 32% federal bracket → TEY = 4% ÷ 0.68 = 5.88%. A taxable bond must yield more than 5.88% to beat the muni after taxes. Add state tax: 32% federal + 8% state = 40% combined → TEY = 4% ÷ 0.60 = 6.67%. Always use your marginal rate — the rate on your next dollar of income — not your effective average rate.
Under the 2026 One Big Beautiful Bill Act (OBBBA), federal marginal brackets are: 10%, 12%, 22%, 24%, 32%, 35%, and 37% (capped at 37% under OBBBA). Investors with MAGI above $200,000 (single) or $250,000 (MFJ) also pay the 3.8% NIIT on taxable investment income — municipal bond interest remains exempt. Combined top effective rate on taxable bond interest for affected investors: 40.8%. TEY of a 4% muni at 40.8%: 4% ÷ 0.592 = 6.76%. Always use your marginal rate, not your effective average rate, in the TEY formula.
A double tax-free muni is issued within your state of residence and exempt from both federal and state income tax. For TEY: add your state's marginal rate to your federal rate. Example: 32% federal + 9.3% California = 41.3% combined → TEY = 4% ÷ 0.587 = 6.82%. Out-of-state munis are only federally exempt — you still owe state income tax. For high-tax states (California 13.3% top rate, New York 10.9%, New Jersey 10.75%, Oregon 9.9%), the double tax-free benefit is especially significant and substantially raises in-state bond TEY.
Munis are generally more tax-efficient at the 24% bracket and above. At 40.8% combined (37% + NIIT), a 4% muni TEY = 6.76% — a taxable bond must yield more than 6.76% to win after taxes. At 22% bracket, TEY = 5.13% — munis are competitive if investment-grade corporates yield 5.5% or below. Below 22%, taxable bonds inside a tax-advantaged account (IRA, 401k) usually outperform munis. In low-yield environments, munis can appear expensive relative to their TEY — compare current muni yields to the calculator's break-even taxable yield before deciding.
The 3.8% NIIT applies to investment income — including taxable bond interest, dividends, and capital gains — for individuals with MAGI above $200,000 (single) or $250,000 (MFJ). Crucially, it does NOT apply to municipal bond interest. This makes munis even more attractive for affected investors. NIIT thresholds are not indexed for inflation (unchanged since 2013), so more investors cross them each year. A 37% bracket investor with $400K MAGI pays 40.8% on taxable bond interest. TEY of a 4% muni = 6.76%. Without NIIT, the same investor's TEY = 6.35%.
Treasury bonds: taxable at the federal level, exempt from state/local taxes. Adjust for fair comparison: After-State-Tax Treasury Yield = Treasury Yield × (1 − State Rate). Example: 5% Treasury, 8% state → 4.60% after-state-tax. Compare directly to the muni yield. CDs: fully taxable at both federal and state. Apply full TEY formula. Example: 5.5% CD, 37% combined rate → 5.5% × (1 − 0.37) = 3.47% after-tax yield — lower than most muni yields at comparable maturities. In states with no income tax (FL, TX, WA, NV), Treasuries and munis have the same state treatment — federal comparison alone determines the winner.
General guidance: Below 22% bracket — taxable bonds (in a tax-sheltered account) usually produce better after-tax returns. 22% bracket — munis are roughly competitive if yields are comparable. 24% and above — munis become increasingly attractive, especially with state tax added. 32%+ with NIIT — munis are the preferred fixed-income choice for taxable accounts. High-tax states amplify this further: 32% federal + 9.3% California combined = 41.3% → TEY of 4% muni = 6.82%. Use the calculator's break-even table to see exactly what taxable yield you need to beat at your specific combined tax rate.
Most munis are AMT-Free — their interest is exempt from both regular income tax and the Alternative Minimum Tax. Private Activity Bonds (PABs) — munis issued for airports, student loans, and private development — are subject to AMT for investors who owe it. Under 2026 OBBBA guidelines, AMT phase-out thresholds have been adjusted. If you purchase a PAB and owe AMT, the effective tax savings are reduced, lowering your actual TEY below the standard formula. The calculator offers an AMT-Free vs. PAB mode to model this difference. When in doubt, choose AMT-Free general obligation or essential-purpose revenue bonds.