Taxable Equivalent Yield Calculator
How to Use the Taxable Equivalent Yield Calculator
Enter the tax-free yield and your marginal tax rate. The calculator estimates the taxable yield an investment would need to earn to match the after-tax return of the tax-exempt investment.
Practical Example
A tax-free yield of 3.5% with a 30% marginal tax rate has a taxable equivalent yield of 5.0% because 3.5% ÷ (1 − 0.30) = 5.0%.
Factors That Affect the Result
Federal, state and local tax treatment, filing status, account type and changes in marginal tax rates can affect the true comparison.
Frequently Asked Questions
What is taxable equivalent yield?
It is the taxable yield required to equal the after-tax return of a tax-exempt investment.
Does a higher tax rate increase taxable equivalent yield?
Yes. The value of tax exemption generally becomes greater as the applicable marginal tax rate rises.
Does this include all taxes automatically?
No. Enter the tax rate that best reflects the taxes relevant to your comparison.
Methodology and Interpretation
Taxable-equivalent yield compares a tax-exempt yield with the pre-tax yield needed to match it, commonly using tax-exempt yield divided by one minus the applicable marginal tax rate. State, local and special tax treatment can change the comparison.