Muni Bond Tax Equivalent Yield Calculator
Find out what pre-tax yield a taxable bond must offer to match your muni bond after federal and state taxes. Enter your tax brackets and toggle state tax exemption instantly.
What Is Tax Equivalent Yield for Muni Bonds?
Tax equivalent yield (TEY) answers the question: "What pre-tax yield does a corporate bond or Treasury need to match a tax-exempt muni bond after I pay taxes?" Municipal bonds are exempt from federal income tax and, if issued by your home state, also exempt from state income tax. For investors in high tax brackets, this double exemption makes munis exceptionally valuable. The formula is: TEY = muni yield / (1 − combined tax rate). Source: IRS Publication 550, Tax-Exempt Interest. Last updated: May 2026.
2026 Federal Tax Bracket TEY Table (3% Muni Bond)
| Federal Bracket | TEY (Federal Only) | TEY (+ 5% State) | Muni Beats If... |
|---|---|---|---|
| 22% | 3.85% | 4.23% | Corporate bond < 3.85% |
| 24% | 3.95% | 4.35% | Corporate bond < 3.95% |
| 32% | 4.41% | 4.85% | Corporate bond < 4.41% |
| 35% | 4.62% | 5.08% | Corporate bond < 4.62% |
| 37% | 4.76% | 5.24% | Corporate bond < 4.76% |
When Muni Bonds Win vs Taxable Bonds
Muni bonds typically outperform taxable bonds on an after-tax basis for investors in the 32% bracket and above. In the 22% bracket, it's close — you need to check whether available muni yields are competitive. In the 10–12% brackets, taxable bonds usually win because you pay so little tax that the tax-free advantage is minimal. Additionally, munis are generally not held in tax-advantaged accounts (IRA, 401k) because the tax exemption is wasted there. They work best in taxable brokerage accounts for high-income earners.
Frequently Asked Questions
What is tax equivalent yield (TEY) for muni bonds?
Tax equivalent yield is the pre-tax yield a taxable bond must offer to match a tax-free muni after taxes. Formula: TEY = muni yield / (1 - combined tax rate). Source: IRS Publication 550.
Are muni bonds exempt from state taxes?
Muni bonds issued by your state of residence are typically exempt from both federal AND state income taxes. Bonds from other states are exempt from federal tax only.
Who benefits most from muni bonds?
Investors in the 32%, 35%, or 37% federal tax brackets benefit most. At the 37% bracket, a 3% muni's TEY is 4.76%, which beats many corporate bonds after tax.
Are muni bonds subject to AMT?
Most municipal bonds are AMT-exempt for individual investors after TCJA. However, private activity bonds may trigger AMT. Check bond documentation before investing. Source: IRS Publication 970.
What is the 2026 federal tax bracket for muni bond TEY?
For 2026, marginal rates are 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The 37% rate applies to single filers above ~$609K and married above ~$731K. Source: IRS Rev. Proc. 2024-61.