Tax-Equivalent Yield CalculatorFree online financial calculator — instant results, no sign-up
Find the taxable yield equivalent to a tax-exempt yield at an entered marginal rate.
Estimates only, based on the inputs and assumptions shown. This is not financial, investment, tax, or legal advice. Prices, rates and local rules may change; crypto scenarios do not predict returns. Confirm important decisions with a qualified professional.
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About the Tax-Equivalent Yield Calculator
The Tax-Equivalent Yield Calculator converts a tax-exempt investment yield into the taxable yield needed to provide the same after-tax return at your entered marginal tax rate. With a tax-exempt yield of 3.5% and an applicable marginal tax rate of 32%, it reports a tax-equivalent taxable yield of 5.15%. Use this tool to compare tax-exempt income with taxable investment income before considering differences in risk, fees, and other investment features.
- Tax-exempt yield (%)
- The yield on an investment assumed to be exempt from the taxes reflected in your entered rate, expressed as a percentage and defaulting to 3.5%.
- Applicable marginal tax rate (%)
- The marginal tax rate that would apply to comparable taxable investment income, expressed as a percentage and defaulting to 32%.
Formula and method
Y_TE = Y_E / (1 - t / 100); with the default inputs, Y_TE = 3.5 / (1 - 32 / 100) = 5.1470588…% ≈ 5.15%.
- Y_TETax-equivalent taxable yield, expressed as a percentage.
- Y_ETax-exempt yield entered as a percentage, such as 3.5.
- tApplicable marginal tax rate entered as a percentage, such as 32.
Divide the entered tax rate by 100, then subtract that decimal rate from 1 to find the share of taxable income retained after tax. Divide the tax-exempt yield by this retained share. For the default inputs, the retained share is 0.68, so 3.5 ÷ 0.68 gives a tax-equivalent taxable yield of 5.15% when rounded to two decimal places.
Worked example
These are the calculator's starting values and the results it actually produces for them.
Inputs
- Tax-exempt yield3.5 %
- Applicable marginal tax rate32 %
Results
- Tax-equivalent taxable yield5.15%
How to use the Tax-Equivalent Yield Calculator
- 1Enter the tax-exempt yield in percent, or keep the default of 3.5%.
- 2Enter the marginal tax rate applicable to comparable taxable income, or keep the default of 32%.
- 3Confirm that the tax-exempt investment is exempt from the taxes represented by your rate and that the rate is below 100%.
- 4Run the calculation and read the tax-equivalent taxable yield; the default inputs produce 5.15%.
- 5Compare that result with taxable investment yields measured on the same time basis, while separately evaluating risk, fees, and liquidity.
Reading your result
The output row, “Tax-equivalent taxable yield,” shows the before-tax yield a taxable investment would need to match the entered tax-exempt yield after the specified tax. The default result of 5.15% means a taxable investment would need approximately that yield to match a 3.5% tax-exempt yield at a 32% marginal tax rate. A taxable yield above the unrounded threshold provides more after-tax income under these assumptions; a yield below it provides less.
Limitations
The calculation assumes the entered tax-exempt yield is fully exempt from the taxes represented by the marginal rate and that comparable taxable income is taxed uniformly at that rate. It does not determine your tax bracket or model state and local tax interactions, alternative minimum tax, income-based surtaxes, or taxes on capital gains. Combined tax rates may require more than simply adding federal and state rates. Compare yields on the same time and measurement basis; the result does not account for credit risk, price changes, maturity, liquidity, fees, or compounding differences. A rate of 100% makes the formula undefined, and rates outside 0% to less than 100% are not meaningful for this standard comparison. This is an educational comparison, not personalized tax or investment advice.
Common questions
Why does a 3.5% tax-exempt yield correspond to a 5.15% taxable yield?+
At a 32% marginal tax rate, you retain 68% of comparable taxable income. Dividing 3.5% by 0.68 gives approximately 5.15%, the taxable yield needed to leave the same after-tax income.
Should I enter my marginal tax rate or my average tax rate?+
Enter the marginal rate applicable to the additional taxable investment income you are comparing. Your average tax rate measures tax across your overall income and generally does not represent the tax on that additional income.
Can I include state and local taxes in the entered rate?+
Yes, if the rate accurately reflects the taxes on the taxable alternative and the tax-exempt investment is exempt from those same taxes. If the investment is federally exempt but taxable by your state, using a combined rate as though it were fully exempt can overstate its tax-equivalent yield.
Does a taxable yield above 5.15% automatically make an investment better?+
No. With the default inputs, it indicates higher after-tax income under the calculator's assumptions, but it does not establish a better overall investment. Credit risk, maturity, price volatility, fees, and liquidity may differ.
Does the calculator save my information?+
Calculations run in your browser. While signed in, inputs and results are automatically recorded in account history; saving a result creates a separate saved record.
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Results are estimates for informational purposes and are not financial, medical or legal advice.