Tax-aware investing
Is the muni worth it in your bracket? Tax-equivalent yield
A tax-equivalent yield calculator: clients enter a municipal bond's tax-free yield and their federal and state rates to see the taxable yield it matches.
Included in Network. 14-day trial, cancel any time.
How do you calculate tax-equivalent yield?
Divide the tax-free yield by one minus your combined tax rate. A 3.5% muni yield at a 24% rate equals about 4.61% from a taxable bond. Higher brackets make munis more attractive. Clients subject to the net investment income tax can add 3.8%2026 · IRS to their federal rate.
After filing, when the bracket is fresh in mind
High earners who just paid a large tax bill look for tax-free income. A broker's muni offer or a friend's recommendation prompts them to check whether the lower yield is really better.
What the client types into a search box
“are municipal bonds worth it in my tax bracket”
How a client works through it
Enter the tax-free yield
The municipal bond's yield.
Enter the federal rate
Marginal rate, adding NIIT if it applies.
Enter the state rate
For in-state bonds exempt from state tax.
See the equivalent
Taxable-equivalent yield and the combined rate.
What lands in your inbox
When a client asks your firm to review the result, the request arrives as a contact record with their inputs and results attached, by email and, on paid plans, by webhook to your CRM.
Received
The yield and rates show the client's bracket and state. High combined rates indicate high income and potential for tax-aware portfolio work.
Comparing yields fairly
Taxable-Equivalent Yield is what a taxable bond must pay to match the muni after tax. Combined Tax Rate shows the rate used. If comparable taxable bonds pay less than the equivalent, the muni wins.
Credit quality and maturity must be similar for the comparison to be meaningful.
Results shown: Taxable-Equivalent Yield · Tax-Free Yield · Combined Tax Rate.
3.5% at a 24% rate
3.5% ÷ (1 − 0.24) = 3.5% ÷ 0.76 ≈ 4.61%. A taxable bond of similar quality would need to yield more than 4.61% to beat the muni for this investor.
Why is this a natural CPA-adviser handoff?
It needs the client's real marginal rate, which the CPA knows, and a view of the bond market, which the adviser brings. It's a concrete demonstration that tax and investment advice belong together.
Clients in high-tax states particularly benefit from understanding in-state muni treatment.
Follow-ups this request opens
- Confirm the client's true marginal rate including NIIT
- Compare in-state and out-of-state munis
- Place bonds in taxable versus retirement accounts
- Consider muni funds versus individual bonds
What this calculator leaves out
- Combines federal and state rates simply.
- AMT on private-activity bonds is ignored.
- In-state versus out-of-state treatment depends on the rate entered.
- Credit and call risk not modeled.
Platform disclaimer shown under the calculator: Estimates only. Combines federal and state rates simply; it ignores the AMT and in-state vs. out-of-state bond differences, and adds the 3.8% net investment income tax only if you include it in the federal rate.
Compliance note for firms
Recommending specific municipal securities is a securities recommendation subject to suitability and best-interest rules. Keep the calculator educational and ensure the client's marginal rate is accurately determined before advising.
Not legal advice. See our disclaimer and the guide to compliance for client calculators.
2026 figures this page relies on
| Figure | Value | Tax year | Source |
|---|---|---|---|
| Net investment income tax | 3.8% | 2026 | IRS |
The same values drive the calculator. Full list on the 2026 figures page.
Terms your client sees in the calculator
These definitions appear in the calculator's collapsible Definitions block, so clients don't have to call to ask what a label means.
- Tax-equivalent yield
- The yield a taxable bond would need to pay to match a tax-free municipal yield after tax. It equals the tax-free yield divided by one minus your combined tax rate. A 3.5% muni yield at a 24% rate is worth about 4.61% taxable. Compare it with taxable bonds of similar quality and maturity.
- Municipal bond
- A bond issued by a state, city, county or other public entity to fund roads, schools, utilities and similar projects. Interest on most municipal bonds is exempt from federal income tax, and often from state tax for residents of the issuing state. Munis usually pay lower stated yields than comparable taxable bonds for that reason.
- Tax-free yield
- The municipal bond’s yield as quoted, which you keep in full because its interest is not taxed at the federal level, and sometimes not at the state level. Use yield to maturity or yield to worst for a consistent comparison, rather than the coupon rate, especially for bonds bought above or below face value.
- Combined tax rate
- The federal and state marginal rates added together, which this calculator uses to find the tax-equivalent yield. Simple addition slightly overstates the combined rate for anyone who deducts state tax on the federal return, and it ignores local taxes. Enter a state rate only if the bond is also exempt from your state’s tax.
- Marginal tax rate
- The rate applied to your last dollar of taxable income, the rate at which additional interest would be taxed. The higher your marginal rate, the more a tax-free yield is worth, which is why municipal bonds tend to favor higher-bracket investors. Use your federal bracket rate, not your effective rate.
- Net investment income tax (NIIT)
- A 3.8% federal surtax on investment income for taxpayers above certain income thresholds (IRS, 2026, rate as stated in this calculator). Taxable bond interest is subject to it, while tax-exempt municipal interest is not. If it applies to you, add 3.8% to your federal rate here, which raises the tax-equivalent yield.
In our glossary: Tax-equivalent yield · Net investment income tax
Municipal Bond Tax-Equivalent Yield calculator: questions from firms and clients
Are munis always tax-free?
Federally, usually; state treatment depends on whether the bond is in-state. Some bonds are subject to AMT.
Should I add the NIIT?
If your income exceeds the thresholds, add 3.8%2026 · IRS to the federal rate.
Do munis make sense in an IRA?
Rarely; the tax benefit is wasted in a tax-deferred account.
What about muni funds?
The same math applies to fund yields.
Is state tax included?
If you enter a state rate.
Does it consider credit risk?
No.
Who benefits most?
High-bracket investors in high-tax states.
Which plan includes it?
Network. See pricing.
No question matches that filter. Clear it to see them all, search the whole site, or ask us directly; we reply within one business day.
Clients who ask this usually ask next
Market Value of Bonds
why did my bonds lose value
Marginal Tax Rate
what tax bracket am I in and what happens if I earn more
Taxable vs. Tax-Deferred
is it better to invest in a taxable account or tax deferred
All “Tax-aware investing” calculators · Everything in Investments & markets
Next entry
Answer the April question before the client calls
Embed the Municipal Bond Tax-Equivalent Yield calculator on your firm's site in an afternoon and receive requests with the numbers already filled in.
Firm and Network plans include a 14-day trial. Cancel before it ends and you pay nothing.