Tax-Equivalent Yield Calculator (2026)
Compare tax-free municipal bonds against taxable alternatives. This tool is updated for the 2026 One Big Beautiful Bill Act (OBBBA) thresholds.
Defaults to top marginal bracket. Advanced users may edit or change.
Tax-Equivalent Yield
To match a 3.50% tax-free yield, a taxable bond must pay 7.63%.
Tax efficiency applies to both income and capital gains.If you are optimizing after-tax bond income, you may also benefit from reviewing ETF correlation data for tax-loss harvesting.
Estimates based on projected 2026 marginal tax brackets. Assumes in-state municipal bond (exempt from Federal & State tax). Consult a tax professional for specific advice.
TaxLossPairs.comState-Specific Calculators
Get precise tax rates and analysis for your state.
2026 Yield Guide (High-Tax States)
| State | Top Rate | If Muni Yield is 3.50%... | Taxable Equiv. |
|---|---|---|---|
| California | 13.3% | 3.50% | 7.63% |
| New York (NYC) | 14.8% | 3.50% | 7.84% |
| New Jersey | 10.75% | 3.50% | 7.21% |
Frequently Asked Questions
How is the Tax-Equivalent Yield (TEY) calculated?
The formula is TEY = Tax-Free Yield ÷ (1 − Total Marginal Tax Rate). We sum your Federal bracket (capped at 37% by OBBBA), the 3.8% NIIT, and your State’s top marginal rate to find the "Total Tax Drag" on your next dollar of interest income.
What is the difference between "Marginal" and "Effective" tax rates?
The IRS and states tax your *next* dollar of interest at your highest possible bracket. Using your effective (average) rate would significantly underestimate the actual tax savings provided by a municipal bond.
Does this apply to national Muni ETFs like MUB or VTEB?
Yes, but only the portion of interest generated by bonds issued from your home state is exempt from your state's income tax. All interest from other states remains taxable at your local state level.
Does this calculator account for the Alternative Minimum Tax (AMT)?
This tool assumes you are purchasing "AMT-Free" bonds. Under 2026 OBBBA guidelines, AMT exemption phase-outs have accelerated; if you purchase "Private Activity Bonds" subject to the AMT, your effective savings may be lower.
Optimize Your Capital Gains
High earners often pair tax-free income with strategic loss harvesting. Have realized losses? Use our decision engine to check if you should harvest.