After-Tax Municipal Bond Yield (TEY) Calculator

The bond and your tax stack

Marginal rates are what matter (not effective rates). Look up your top bracket on last year's 1040 schedule.

Muni yield (%)

The stated yield on the muni you are considering. Either YTM (from broker quote) or current yield if held to maturity is the same.

Comparable taxable yield to compare against (%)

Typically the same-maturity Treasury or investment-grade corporate. The tool will tell you which one wins after tax.

Marginal federal tax rate (%)

Top marginal: 37%. Common upper-middle brackets: 24%, 32%, 35%. The higher your bracket, the more attractive munis become.

Marginal state + local tax rate (%)

CA 13.3%, NY 6.85% + NYC 3.876%, TX/FL/WA/NV 0%. Include local taxes where applicable.

In-state vs out-of-state muni

Subject to Net Investment Income Tax (NIIT)?

NIIT does not apply to municipal-bond interest. But it DOES apply to taxable comparables — making munis relatively more attractive at high incomes.

AMT exposure (optional)

Interest on most munis is fully tax-exempt. Interest on certain "private-activity bonds" issued for non-governmental purposes (e.g., airport, stadium, hospital) is a preference item for the Alternative Minimum Tax.

This muni is a private-activity bond (PAB) and I am subject to AMT

Your TEY result

TAX-EQUIVALENT YIELD

Compute to see your TEY.

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Side-by-side comparison

MUNI (TAX-EXEMPT)

Your muni yield

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Effective: — after-tax (no federal, possibly no state).

TAXABLE COMPARABLE

Same-maturity Treasury / Corp

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Effective: — after-tax (fed + state + NIIT applied).

IN-STATE STATE-TAX SAVINGS

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Breakeven taxable yield — the minimum yield a Treasury or corporate must offer to beat your muni

Any taxable yield above the breakeven beats the muni after tax. Below the breakeven, the muni wins. The breakeven moves dramatically with your bracket.

Show the math — TEY formula, in-state and out-of-state cases ›

The tax-equivalent yield (TEY) formula — the workhorse for the muni-vs-taxable decision.

TEY = muni_yield / (1 − t_marginal)

Where t_marginal is the marginal tax rate on the comparable taxable bond's interest. The intuition: if your taxable bond's interest is taxed at 32% federal, a muni paying 3.5% is equivalent (after-tax) to a taxable bond paying 3.5% / (1 − 0.32) = 5.15%. Any taxable yield below 5.15% loses to the muni; any taxable yield above wins.

In-state muni (federal + state tax-free). Compare against a corporate or out-of-state bond that is fully taxable. Marginal rate = federal + state + NIIT.

TEY_in_state = muni_yield / (1 − (fed + state + NIIT))

Out-of-state muni (federal tax-free only). The state taxes the interest. If comparing against a Treasury (also state-exempt), the marginal rate is federal + NIIT. If comparing against a corporate, the state offset partly cancels.

TEY_out_state_vs_corp = (muni_yield × (1 − state)) / (1 − (fed + state + NIIT)) TEY_out_state_vs_treasury = (muni_yield × (1 − state)) / (1 − (fed + NIIT))

NIIT (Net Investment Income Tax) — the 3.8% surcharge that applies to taxable investment income above $200K (single) / $250K (MFJ) MAGI. NIIT does NOT apply to municipal-bond interest. That means high-earner households see an extra 380bps relative benefit from munis — usually enough to flip the muni-vs-Treasury decision toward munis at modest yield spreads.

AMT & private-activity bonds. Interest on most munis is fully tax-exempt at the federal level. But interest on private-activity bonds (issued for non-governmental purposes — airport facilities, stadium financing, hospital construction) is an AMT preference item. If you are subject to AMT, you owe AMT on that interest at 26% or 28%. Bonds carrying AMT exposure are typically labeled "AMT" in the offering doc; they trade at a yield premium of 20-50 bps to compensate.

The breakeven formula — rearranges TEY.

Breakeven_taxable_yield = muni_yield / (1 − t_marginal)

i.e., breakeven = TEY by definition.

Caveat — credit risk. The TEY framework is yield-only. It does not adjust for credit risk. General-obligation munis are typically AA/AAA; revenue bonds vary widely. A 3.5% Puerto Rico GO is not a "3.5% muni" in any meaningful comparison sense. Match credit quality before comparing yield.

DIG DEEPER · INSTITUTE TAX & FIXED-INCOME TOOLS

Related tools & guides

Compute the YTM on a specific muni bond before applying TEY → Bond Yield Calculator (YTM / YTC / After-Tax)
Build a muni ladder for predictable tax-free income → Bond Ladder Builder (select In-state Muni)
Bond duration & convexity for interest-rate sensitivity → Bond Duration & Convexity Calculator
Multi-year tax-bracket planning during the retirement window → Roth Conversion Stairstep — IRMAA cliffs, NIIT, 15+ states.
Estate Planning Decoded · the muni-bond carve-out for charitable trusts and step-up planning → Tax Planning Guide + Family Office Reference.

Disclosure. This tool produces an educational planning estimate. The TEY framework is yield-only and does not adjust for credit quality (AAA Treasury vs A-rated muni), liquidity (some munis trade thinly), call risk (many munis are callable in 10 years), or AMT exposure on private-activity bonds. NIIT applies above $200K/$250K MAGI; the toggle is a simplification. State-tax conformity to federal muni-exemption rules varies (a few states tax out-of-state munis differently from this model). For Puerto Rico, Guam, and other US territory bonds, the triple-tax-exempt status (federal + state + local) applies regardless of resident state — not modeled here. This is not investment advice; consult a fixed-income specialist and a CPA familiar with your state's muni-tax treatment. baratelliinstitute.com

A 3.5% muni or a 5.0% Treasury — which one actually pays you more? Tax-equivalent yield, made transparent.

The bond and your tax stack

AMT exposure (optional)

Your TEY result

Side-by-side comparison

Breakeven taxable yield — the minimum yield a Treasury or corporate must offer to beat your muni

Same subject. Four levels of depth.

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