Tax Equivalent Yield
Calculator

It converts a tax-exempt investment's yield, such as a municipal bond, into the equivalent yield a taxable investment would need to offer to match it after taxes, allowing a fair side-by-side comparison between taxable and tax-free options.

A higher marginal tax rate increases the tax-equivalent yield for the same tax-exempt yield, because taxable income is reduced more by taxes at higher brackets, making tax-free income relatively more valuable the higher your tax rate.

Because its interest is often exempt from federal, and sometimes state, tax, its after-tax return can exceed that of a higher-yielding taxable bond once you account for the taxes owed on the taxable option's interest.

Only if you include a combined rate reflecting both; municipal bonds issued in your state of residence are often exempt from state tax too, so using only the federal rate can understate the true tax-equivalent yield for in-state investors.

Yes, the same logic applies whenever comparing any tax-advantaged income source to a taxable one, such as comparing a Roth account's tax-free growth to a taxable brokerage account's taxed returns.