Comparing a municipal bond’s yield directly against a taxable bond’s yield understates its real value — this converts to a fair apples-to-apples comparison.
How it works
The municipal yield is divided by one minus the combined marginal tax rate (federal plus, if applicable, state). The result is the yield a taxable bond would need to match the muni’s after-tax return.
What this does not include
This doesn’t account for the Alternative Minimum Tax, which can make certain “private activity” municipal bonds partially taxable for some investors — a detail specific to the bond type this calculator doesn’t check.
How to use this calculator
- Enter the municipal bond yield and your federal marginal tax rate.
- Enter a state tax rate if the bond is also state-tax-exempt for you.
Frequently asked questions
Why does a higher tax bracket make munis more attractive?
Because the tax-equivalent yield rises with the marginal rate — the same municipal yield is worth more to a high-bracket taxpayer than a low-bracket one.
When would a taxable bond still be the better choice?
When its actual yield exceeds the computed tax-equivalent yield — at low enough tax brackets, taxable bonds often win even after accounting for tax.
Does this apply to municipal bond funds too?
Yes — the same math applies to a fund’s distributed tax-exempt yield, though a fund may hold a mix of in-state and out-of-state bonds affecting the state tax exemption.
