Tax-Equivalent Yield Calculator — Taxable vs. Tax-Exempt
Find the taxable yield you’d need to match a tax-exempt rate — or vice versa. Essential for comparing municipal bonds, tax-advantaged accounts, and regular CDs or HYSAs.
If a muni bond yields 3.00% tax-free and you’re in the 32% federal bracket, the equivalent taxable yield is 4.41% — meaning you’d need a CD or HYSA paying 4.41% to beat the muni after taxes. Enter any two values to solve for the third.
How the tax-equivalent yield formula works
Tax-Equivalent Yield = Tax-Exempt Yield ÷ (1 − Combined Tax Rate)
If a municipal bond pays 3.00% and your combined federal + state rate is 32%, the tax-equivalent yield is 3.00% ÷ 0.68 = 4.41%. Any taxable account paying more than 4.41% beats the muni after taxes. Any account paying less means the muni wins.
Tax-equivalent yields by bracket — 3.00% muni
At the same 3.00% tax-exempt yield, here is the required taxable yield to break even at each federal bracket (no state tax):
| Federal bracket | Combined rate | Tax-equiv yield needed | Current best CD beats it? |
|---|---|---|---|
| 10% | 10.0% | 3.33% | Yes (4.15%+ available) |
| 12% | 12.0% | 3.41% | Yes |
| 22% | 22.0% | 3.85% | Yes |
| 24% | 24.0% | 3.95% | Yes |
| 32% | 32.0% | 4.41% | Marginal — check current rates |
| 35% | 35.0% | 4.62% | No — muni likely wins |
| 37% | 37.0% | 4.76% | No — muni likely wins |
Based on 3.00% tax-exempt yield, no state tax. Add your state rate to the calculator above for a more accurate comparison.
When does a tax-exempt yield make sense?
Tax-exempt investments make more sense the higher your marginal rate. At 22%, a 3.00% muni is equivalent to a 3.85% taxable yield — and current CDs beat that. At 37%, the same muni is equivalent to 4.76% taxable, which is harder to beat with a CD or HYSA at current rates.
The decision also depends on your state tax rate. In a high-tax state like California (13.3% top rate), a California muni exempt from both federal and state tax is worth significantly more than its headline yield suggests. Add your state rate in the calculator to see the full combined effect.
What counts as tax-exempt?
Municipal bonds (federal-exempt, often state-exempt if you live in the issuing state), Roth IRA qualified distributions, and HSA distributions for qualified medical expenses. CDs, HYSAs, and money market accounts are fully taxable as ordinary income at your federal marginal rate plus state income tax.
Treasury bills and notes are federally taxable but exempt from state income tax. For savers in high-tax states, this makes T-bills competitive with HYSAs on an after-tax basis even when the headline rate is similar. Use the HSA tax benefits calculator to model the HSA’s triple tax advantage separately.
Yes. Interest from CDs and high-yield savings accounts is taxed as ordinary income at your federal marginal rate (10%–37%) plus any applicable state income tax. This is why the after-tax yield on a 4.15% CD can be significantly lower than the headline rate for high earners in high-tax states.
3.00% ÷ (1 − 0.32) = 4.41%. A CD or HYSA paying more than 4.41% would net more after taxes than the 3% muni for someone in the 32% bracket. If your state also taxes the income, add your state rate for a higher break-even.
Yes — enter your state marginal rate in the optional field. The combined rate is federal + state. Note: some municipal bonds are also exempt from state tax if you live in the issuing state, which increases their effective yield further. A California muni held by a California resident is exempt from both federal and California income tax.
Treasury bill interest is federally taxable but exempt from state income tax. For savers in high-tax states (California at 13.3%, New York at up to 10.9%), this makes T-bills competitive with or better than HYSAs when the rates are similar. Enter your state rate in the calculator above and compare a T-bill yield (tax-exempt from state) vs. a HYSA yield (fully taxable).