Municipal Bond Tax-Equivalent Yield Booster
Compare municipal bond yields with taxable alternatives using your personal marginal tax stack. Supply the muni yield and your federal bracket, then optionally add state tax and surtax exposure to surface the tax-equivalent yield and the spread against a taxable benchmark.
Consult a tax advisor for personalized guidance. This tool provides a simplified comparison for educational purposes.
Examples
- 3.80% muni yield, 37% federal, 5% state, 0% surtax, 5.0% taxable benchmark ⇒ Tax-equivalent yield: 6.35% • Effective blended tax rate: 40.15% • Advantage vs. taxable bond: 1.35%
- 2.90% muni yield, 24% federal, defaults for options ⇒ Tax-equivalent yield: 3.82% • Effective blended tax rate: 24.00% • Advantage vs. taxable bond: -1.18%
FAQ
How should I handle state tax deductions on federal returns?
The calculator assumes state taxes are not deductible for federal purposes, matching post-TCJA rules for most investors. Adjust the state rate downward if you can deduct it.
Can this evaluate AMT exposure?
Enter the marginal percentage you expect to pay under AMT in the surtax field. High-income filers can combine AMT and NIIT for a conservative effective rate.
Does the tool factor in credit risk or call features?
No. It isolates tax impacts only. Evaluate credit quality, call risk, and liquidity separately before making allocation decisions.
What if my muni is subject to state tax?
Add your state rate unless the bond is issued by your home state or qualifies for reciprocal exemptions.
Additional Information
- Effective tax rate multiplies the complement of federal and state rates to avoid double counting and assumes state taxes are not deductible at the federal level.
- Enter AMT or Net Investment Income Tax percentages in the surtax field to account for high-income surcharges on taxable interest.
- Comparative spread subtracts the taxable bond yield you supply from the tax-equivalent yield to highlight the relative advantage.