Tax-equivalent yield is the taxable yield you'd need to match a tax-free one after tax. You get it by dividing the tax-free yield by one minus your tax rate.
At a 24% rate, a 3% tax-free yield equals 3.95% taxable. It's the fair way to set a municipal bond, or muni, against a taxable bond.
The one-line formula behind the result
Enter both figures as percentages. The calculator won't accept a tax rate of 100% or more, where the formula stops working.
Under the result, "Amount added on" is the part of the taxable yield that tax would take. The last figure shows the result for a tax-free yield 10% higher.
Which tax rate should you enter?
Use your marginal rate: the federal rate on your last dollar of income. Take a single filer with $60,000 of taxable income in 2026. The table in Revenue Procedure 2025-32 gives the tax as $5,800 plus 22% of the excess over $50,400.
So each extra dollar of interest costs 22 cents in federal tax, and 22% is the rate to enter. The whole bill is $7,912 ($5,800 plus 22% of $9,600), about 13% of that income. Using that average rate would understate what the muni is worth to you.
Here's what a 3% tax-free yield is worth at each 2026 rate for a single filer:
| Single filer's taxable income, 2026 | Federal rate | Taxable yield that matches 3% tax-free | Part of it lost to tax |
|---|---|---|---|
| Up to $12,400 | 10% | 3.33% | 0.33% |
| Over $12,400 to $50,400 | 12% | 3.41% | 0.41% |
| Over $50,400 to $105,700 | 22% | 3.85% | 0.85% |
| Over $105,700 to $201,775 | 24% | 3.95% | 0.95% |
| Over $201,775 to $256,225 | 32% | 4.41% | 1.41% |
| Over $256,225 to $640,600 | 35% | 4.62% | 1.62% |
| Over $640,600 | 37% | 4.76% | 1.76% |
The same 3% muni is worth 3.33% taxable in the 10% bracket and 4.76% at 37%. Married couples filing jointly reach each rate at higher incomes; for them, 22% starts above $100,800. The tax bracket calculator finds your marginal rate, though it still uses the 2025 tables.
Where the taxable bond wins
Turn the formula around, and you get the tax rate at which two bonds tie:
Against a 4% taxable bond, a 3% muni ties at a 25% rate. Below that, the taxable bond leaves you more after tax; above it, the muni does. In the 2026 table, the line falls between the 24% and 32% brackets.
Adding state tax and the 3.8% NIIT
The IRS says Treasury interest is subject to federal income tax but exempt from all state and local income taxes. Investor.gov says muni interest may also be exempt from state and local taxes if you live in the issuing state.
So the rate you enter depends on the other bond. Against a Treasury, a state-exempt muni saves only federal tax, so enter your federal rate. If the taxable bond is taxed by your state and the muni isn't, add the two rates.
High earners may have one more tax to add. The 3.8% net investment income tax (NIIT) can apply to interest once your income passes a threshold. The IRS lists $200,000 for single filers and $250,000 for married couples filing jointly, amounts not indexed for inflation. Tax-exempt interest isn't net investment income, so munis avoid it.
The calculator takes one rate, so enter the total. Here's the same 3% muni against bonds taxed in different ways:
| Taxes on the taxable bond | Rate to enter | Taxable yield that matches 3% tax-free |
|---|---|---|
| 24% federal only | 24.0% | 3.95% |
| 24% federal + 5% state (example rate) | 29.0% | 4.23% |
| 35% federal + 3.8% NIIT | 38.8% | 4.90% |
| 37% federal + 3.8% NIIT | 40.8% | 5.07% |
| 37% federal + 3.8% NIIT + 5% state | 45.8% | 5.54% |
With every layer added, a taxable bond must pay 5.54% to match 3% tax-free. The 5% state rate is only an example; use your own state's marginal rate.
Tax-free interest still shows up on your return
You still report tax-exempt interest. The IRS calls that “an information-reporting requirement only”, and it doesn't make the interest taxable.
It can still raise your tax elsewhere. If you get Social Security, Publication 915 (for 2025 returns) describes a test. You add half your benefits to all your other income, including tax-exempt interest. If that total is more than your base amount, some of your benefits may be taxable. The base amount is $25,000 for single filers and $32,000 for married couples filing jointly.
Investor.gov says to consider consulting a tax professional about a bond's tax implications. One it names: the bond may be subject to the federal alternative minimum tax.
Compare bonds that are otherwise alike
Because of the tax benefits, munis usually pay less than similar taxable bonds, Investor.gov notes. Its example is corporate bonds with similar maturities and credit qualities. Your comparison needs the same match: similar term, similar credit, and the same kind of yield.
Enter a yield, not a coupon. The yield to maturity calculator works it out for a bond bought above or below face value. Many munis are callable, and Investor.gov says investors who want to hold to maturity should research the call provisions first. The yield to call calculator shows your yield if the issuer repays the bond at the call date.
Investor.gov says EMMA, the Municipal Securities Rulemaking Board's website, provides free public access to muni documents and data.
Sources
- IRS, Revenue Procedure 2025-32: inflation adjustments for tax year 2026
- IRS, Questions and Answers on the Net Investment Income Tax (reviewed September 14, 2026)
- IRS, Topic no. 403, Interest received (reviewed September 24, 2026)
- IRS, Publication 915 (2025), Social Security and Equivalent Railroad Retirement Benefits
- SEC, Investor.gov: Municipal Bonds (accessed September 27, 2026)