Tax-Equivalent Yield Calculator

Q: What is the AMT risk with muni bonds?

Private activity bonds are subject to the Alternative Minimum Tax at 26% or 28%. General obligation bonds and essential-purpose revenue bonds are NOT subject to AMT. The OBBBA raised AMT exemptions ($136,800 MFJ / $88,100 single for 2026).

Q: In-state vs out-of-state munis — does it matter?

Yes, significantly in high-tax states. In-state munis are exempt from both federal AND state income tax. Out-of-state munis are exempt from federal tax only. In CA (9.3%) or NY (8.82%), the state exemption adds meaningful value. In zero-tax states, buy whichever muni has the best yield.

Q: Why are Treasuries state-tax exempt?

U.S. Treasury securities are exempt from state and local income tax under federal law (31 USC §3124). A 4.5% Treasury in California is equivalent to about 4.96% from a fully-taxable HYSA. Treasuries still owe federal income tax at your marginal rate.

Find the taxable yield that matches your tax-free muni bond. Compare after-tax returns on munis, corporates, Treasuries, and HYSA/CDs — or reverse-calculate the muni yield you need.

Find what taxable yield matches your tax-free muni bond

Tax-exempt yield

Your muni bond yield (typical AAA 10yr: 3.2-3.8%)

Federal tax bracket

Your marginal federal income tax rate

State income tax rate

CA: 9.3%, NY: 6.85%, TX/FL: 0%

Subject to AMT?

Private activity bonds may be subject to AMT

Investment amount

For dollar income comparison

Local tax rate

NYC: 3.88%, other cities may have local income tax

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How to Use This Calculator

TEY Calculator tab

The default tab. Enter your tax-exempt muni yield, federal tax bracket, and state tax rate. The calculator computes your tax-equivalent yield — the taxable bond yield you'd need to match your muni after taxes. Expand "More options" to toggle AMT for private activity bonds, set an investment amount for dollar comparison, and add a local tax rate.

Compare Investments tab

Enter yields for muni bonds, corporate bonds, Treasuries, and HYSA/CDs. The calculator shows after-tax yields for each at your bracket, ranks them best to worst, and shows annual dollar income on your investment amount. Each investment type has different tax treatment — munis are exempt, Treasuries skip state tax, and corporates/HYSA are fully taxed.

What Rate Do I Need? tab

The reverse calculator. Enter any taxable yield (your HYSA rate, a CD, or corporate bond) and see what muni yield you'd need to match it. Useful for answering "Should I move from my 4.2% HYSA to munis?"

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Every input is encoded in the URL. Click Share to send your exact scenario to a partner, advisor, or broker.

The Formula

Tax-equivalent yield converts a tax-free muni yield to the taxable yield you'd need to earn the same after-tax income:

TEY = Tax-Exempt Yield ÷ (1 - Combined Marginal Rate)

Combined Rate = 1 - (1 - Federal Rate) × (1 - State Rate) × (1 - Local Rate)

Reverse: Required Muni = Taxable Yield × (1 - Combined Rate)

The precise combined rate formula accounts for the interaction between federal and state taxes. A 24% federal bracket with 9.3% CA state tax gives a combined rate of about 31.1%, not 33.3%. This matters — an approximate (additive) formula overstates your TEY.

For AMT-subject bonds (private activity munis), the calculator substitutes the 26% AMT rate if it exceeds your regular federal bracket. Most general obligation and essential-purpose revenue bonds are not subject to AMT.

Example

Linda — Retired Teacher, 63, San Francisco CA

Linda is in the 24% federal bracket with 9.3% CA state tax. She holds a 3.5% California muni bond and is considering moving $100,000 to a 5.5% corporate bond. Should she?

TEY Calculator tab

Muni yield (tax-free)3.50%

Federal bracket24%

State tax (CA)9.3%

Combined marginal rate31.1%

Tax-equivalent yield5.08%

Linda's 3.5% muni is equivalent to a 5.08% taxable bond. The 5.5% corporate beats it — but only by 0.42% before considering credit risk and state tax on the corporate.

Compare Investments tab

Muni (3.5%) after-tax3.50% — $3,500/yr

Corporate (5.5%) after-tax3.79% — $3,789/yr

Treasury (4.5%) after-tax3.42% — $3,420/yr

HYSA (4.2%) after-tax2.89% — $2,894/yr

The corporate bond edges out the muni by $289/yr, but carries credit risk. The muni beats both the Treasury and HYSA. At Linda's bracket, the muni is the second-best option and the safest.

FAQ

What is tax-equivalent yield (TEY)? ▼

Tax-equivalent yield is the pre-tax return a taxable investment must earn to match the after-tax return of a tax-exempt municipal bond. Since muni bond interest is free from federal income tax (and often state tax for in-state bonds), a 3.5% muni can be worth more than a 5% taxable bond at higher brackets. TEY = muni yield / (1 - your combined marginal tax rate).

When do muni bonds beat taxable bonds? ▼

Munis become more attractive as your tax bracket increases. At the 32-37% federal brackets (especially in high-tax states like CA, NY, NJ), a 3.5% muni can be equivalent to a 5.5%+ taxable bond. Below the 22% bracket, taxable bonds usually win because the tax savings don't compensate for the lower muni coupon. The breakeven depends on your exact federal + state + local rate.

What is the AMT risk with muni bonds? ▼

Private activity bonds (used to fund airports, housing, hospitals) are subject to the Alternative Minimum Tax. If you're subject to AMT, the interest is taxed at 26% or 28% instead of being tax-free. General obligation bonds and essential-purpose revenue bonds are NOT subject to AMT. The OBBBA raised AMT exemptions ($136,800 MFJ / $88,100 single for 2026) and phase-out thresholds ($1M MFJ / $500K single), reducing AMT exposure for most taxpayers.

In-state vs out-of-state munis — does it matter? ▼

Yes, significantly in high-tax states. In-state munis are typically exempt from both federal AND state income tax. Out-of-state munis are exempt from federal tax only — you'll owe state tax on the interest. In California (9.3%) or New York (8.82%), the state tax exemption adds meaningful value. In zero-income-tax states (TX, FL, WA, NV, TN, NH, WY, SD, AK), it doesn't matter — buy whichever muni has the best yield.

Why are Treasuries state-tax exempt? ▼

U.S. Treasury securities (T-bills, T-notes, T-bonds, TIPS, I-bonds) are exempt from state and local income tax under federal law (31 USC §3124). This makes Treasuries especially attractive in high-tax states. A 4.5% Treasury in California is equivalent to about 4.96% from a fully-taxable HYSA or corporate bond (state-tax-adjusted). Treasuries still owe federal income tax at your marginal rate.

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