After-Tax Yield Calculator
A 6% yield is not really 6% if taxes take a quarter of it. After-tax yield is what you actually keep, and it is the only fair basis for comparing a taxable bond against a tax-exempt one. A 5% municipal bond beats a 6% corporate bond for an investor in the 25% bracket, because the corporate bond keeps only 4.50% after tax while the muni keeps the full 5.00%. The headline yield picks the loser; the after-tax yield picks the winner.
The After-Tax Yield Calculator below keeps the three modes the live tool has always offered. Basic mode turns a pre-tax yield into its after-tax value using your federal rate plus an optional state rate. Tax-equivalent yield mode runs the question backwards, translating a tax-free yield into the taxable yield that would match it. Comparison mode puts a taxable and a tax-exempt yield head to head at your tax rate, declares the winner, and can show the annual after-tax income on an investment amount.
The defaults are pre-filled with the worked example used on this page: a 6% pre-tax yield at a 25% federal rate. Press Calculate and the after-tax yield is 4.50%, a 25.0% reduction handed to taxes before you spend a cent of it.
Quick Answer
Key takeaways
- After-tax yield = pre-tax yield x (1 – tax rate). Compare kept yields, never stated yields.
- Tax-equivalent yield = tax-free yield / (1 – tax rate). At 25%, a 4% muni is worth a 5.33% taxable bond; at 37%, it is worth 6.35%.
- Federal and state rates do not simply add: the combined rate is federal + state – (federal x state), because state tax is deductible federally for itemizers.
- Use your marginal rate, the rate on your next dollar of income. Your average effective rate understates the tax on new investment income.
- Quick Answer
- How the three modes work, step by step
- Worked examples: all three modes on the same investor
- What your bracket does to the same 4% municipal bond
- Taxable or tax-exempt: the honest trade-off
- What competing calculators miss
- Frequently asked questions
- Add This Calculator to Your Website
- References
How the three modes work, step by step
Each mode answers a different question, and most investors need all three at different moments. Basic mode prices the tax on a yield you already hold or are quoted. Tax-equivalent mode prices the exemption on a tax-free yield, which is how municipal bonds are honestly compared with corporate bonds and CDs. Comparison mode settles a specific either-or choice and puts a dollar figure on it.
Pick the mode that matches your question. “What do I keep from this 6% bond?” is basic mode. “What would a taxable bond need to pay to match this 4% muni?” is tax-equivalent mode. “This 6% corporate or this 5% muni?” is comparison mode.
Enter your marginal tax rate. Use the rate on your next dollar of investment income. If you itemize and pay state income tax, add the state rate in basic mode and let the calculator combine the two properly; in the other modes, enter the combined marginal rate you face.
Read the kept yield and the verdict. Every result shows what you keep, what tax took, and a plain recommendation band: low impact at or under 15%, moderate to 25%, high to 35%, and very high above that, where tax-exempt options usually dominate.
The marginal-rate point deserves emphasis, because it is where most home calculations go wrong. The IRS taxes investment income on top of your other income, at the bracket that income falls into; the current IRS federal income tax rates and brackets show how wide the gap between your average rate and your top bracket can be. If you are unsure which bracket your next dollar lands in, an 1040 calculator works it out from your income and filing status before you come back here.
Worked examples: all three modes on the same investor
One investor, a 25% marginal rate, run through every mode. These are the pre-filled defaults, verified against the calculator code:
| Mode | Inputs | Result |
|---|---|---|
| After-tax yield | 6% pre-tax, 25% federal, 0% state | 4.50% kept; 1.50 points lost to tax |
| After-tax yield with state tax | 6% pre-tax, 24% federal, 5% state (27.80% combined) | 4.33% kept |
| Tax-equivalent yield | 4% tax-free, 25% rate | 5.33% taxable yield needed to match |
| Comparison | 6% taxable vs 5% tax-exempt, 25% rate, $10,000 | Tax-exempt wins: 5.00% vs 4.50% kept; $500.00 a year |
The state-tax row is the one most calculators get wrong or skip. Adding 24% and 5% gives 29%, but the honest combined rate is 27.80%, because the state tax you pay reduces the federal tax you owe when you itemize. On a 6% yield the difference between the lazy math and the right math is small per year and large per decade, which is why this calculator builds the interaction term into basic mode instead of asking for one blended rate.
What your bracket does to the same 4% municipal bond
Tax exemption is worth exactly as much as the tax it avoids, so the same tax-free yield is a mediocre deal in a low bracket and an excellent one in a high bracket. Here is the tax-equivalent mode run for a 4% municipal bond at every common federal marginal rate:
| Marginal tax rate | Tax-equivalent yield of a 4% muni | What a taxable bond must beat |
|---|---|---|
| 10% | 4.44% | 4.44% |
| 12% | 4.55% | 4.55% |
| 22% | 5.13% | 5.13% |
| 24% | 5.26% | 5.26% |
| 25% | 5.33% | 5.33% |
| 32% | 5.88% | 5.88% |
| 35% | 6.15% | 6.15% |
| 37% | 6.35% | 6.35% |
Two practical consequences follow. First, municipal bonds are priced for high-bracket buyers, so if you sit in the 10% or 12% bracket, a taxable bond or a high-yield savings calculator comparison, with the tax run honestly, will usually beat the muni on kept yield. Second, the ranking flips fast as income rises: a promotion that moves you from 22% to 32% raises the value of every tax-free dollar you hold by about 15%, without the bond changing at all.
Taxable or tax-exempt: the honest trade-off
Taxable investments (corporate bonds, CDs, savings)
- Higher stated yields, because the market knows you will be taxed.
- Win in low brackets, where the tax bite is small.
- Wider choice and usually higher credit risk options for reaching for yield.
- Interest is taxed as ordinary income at federal level, and usually by your state too.
Tax-exempt investments (municipal bonds)
- Lower stated yields that are kept in full at the federal level.
- Win in high brackets; an in-state muni is often exempt from state tax as well.
- Interest reported on your return but generally excluded from federal taxable income.
- Less attractive inside an IRA or 401(k), where the exemption is wasted.
Two boundary cases round out the picture. Treasury securities sit in between: their interest is taxed federally but exempt from state and local tax, a treatment the Treasury itself documents on its TreasuryDirect tax information for EE and I bonds page, so in a high-tax state a Treasury can beat a corporate bond with a higher stated yield. And inside tax-advantaged accounts none of this page applies: growth is sheltered there, so compare pre-tax yields and hold your least tax-efficient assets inside the shelter. The same discipline applies on the gains side, where a capital gains loss calculator handles the separate question of harvesting losses, and on the bond-math side, where a constant yield calculator shows how premium and discount amortization change the yield itself before tax ever enters.
What competing calculators miss
We checked the top-ranking yield tools before rebuilding this page: the MortgageCalculatorTools tax equivalent yield calculator, the MiniWebTool tax-equivalent yield calculator, the IQ Calculators municipal bond calculator, the Corporate Finance Institute tax equivalent yield guide, and the Calculator City taxable equivalent yield calculator. The pattern is consistent: one formula each, and the state-tax math done loosely or not at all.
Winning move 1: all three modes in one tool. Every competitor above is built around tax-equivalent yield alone, or around a full bond-pricing form. None pairs it with a basic after-tax mode and a head-to-head comparison that declares a winner and converts it into annual income on your amount. Most real questions arrive as comparisons, and comparisons are what the third mode answers directly.
Winning move 2: the combined rate done properly. The IQ Calculators muni tool adds federal and state rates together (32% plus 6% shown as a flat 38%), which overstates the tax and flatters the muni. This calculator applies the interaction term, federal + state – (federal x state), the way the deduction actually works for itemizers, and it brings that combined-rate method into basic mode, where the ranking basic tools ask for a single rate and quietly understate the bite for anyone paying state tax.
Winning move 3: a verdict, not just a number. The CFI guide explains the formula well and offers no calculator at all; the calculator sites return a percentage with no guidance on what it means for the decision. Here every mode ends with a recommendation band tied to your rate, and comparison mode names the winner in plain words, with copy and share for the result.
Frequently asked questions
Because taxes are a real cost of holding a taxable investment. A 6% taxable yield in a 25% bracket keeps 4.50%, while a 5% tax-exempt yield keeps the full 5.00%. Comparing stated yields picks the 6% bond; comparing kept yields picks the bond that actually pays you more. Every comparison on this page is done on kept yields.
They raise your effective rate, but not by simple addition. State income tax is generally deductible against federal tax if you itemize, so the combined rate is federal + state – (federal x state): 25% federal plus 5% state combines to 28.75%, not 30%. Enter both rates in basic mode and the calculator applies the interaction for you.
Tax-equivalent yield translates a tax-free yield into the taxable yield you would need to match it, so municipal bonds can be compared directly with corporate bonds, CDs, and Treasuries quoted pre-tax. A 4% muni at a 25% rate has a tax-equivalent yield of 5.33%: any taxable investment yielding less than that loses, after tax.
No. Inside tax-advantaged accounts, investments grow tax-deferred or tax-free, so the pre-tax yield is the relevant figure and a tax-exempt bond’s exemption is wasted there. After-tax yield matters for taxable brokerage and bank accounts, which is also where tax-exempt holdings usually belong.
Marginal: the rate on the next dollar of investment income, because the yield you are testing is added on top of your other income. Your effective (average) rate blends in all the income taxed at lower brackets and understates the tax bite on new investment income, sometimes by ten points or more.
The higher your rate, the more of a taxable yield the tax takes, and the more valuable exemption becomes. At a 12% rate a 4% muni is worth only a 4.55% taxable yield, so taxable options often win. At 37% the same muni is worth 6.35%, and tax-exempt options usually win. The bond did not change; the tax did.
No. Treasury interest is taxed at the federal level but is exempt from state and local income tax, while corporate bond interest is taxed at both levels. In a high-tax state that difference can let a Treasury with a lower stated yield keep more than a corporate bond, which is why state treatment belongs in any after-tax comparison.
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References
- Internal Revenue Service, “Federal Income Tax Rates and Brackets” – the official marginal bracket tables that determine the rate to enter in this calculator. IRS: Federal Income Tax Rates and Brackets. Accessed October 2026.
- Internal Revenue Service, “Tax-Exempt Bonds” – the IRS overview of governmental and private activity bonds and the federal tax exemption for municipal bond interest. IRS: Tax-Exempt Bonds. Accessed October 2026.
- Internal Revenue Service, Topic No. 403, “Taxable and Tax-Exempt Interest” – the IRS explanation of which interest is taxable, which is exempt, and how each is reported. IRS Topic 403: Taxable and Tax-Exempt Interest. Accessed October 2026.
- Internal Revenue Service, “About Schedule A (Form 1040)” – the itemized deduction schedule behind the state tax deductibility reflected in the combined-rate formula. IRS: About Schedule A (Form 1040), Itemized Deductions. Accessed October 2026.
- U.S. Department of the Treasury, TreasuryDirect, “Tax Information for EE and I Bonds” – the official statement that savings bond interest is subject to federal tax but exempt from state and local tax. TreasuryDirect: Tax Information for EE and I Bonds. Accessed October 2026.
- Internal Revenue Service, “About Form 1099-INT, Interest Income” – how interest income, including tax-exempt interest, is reported to you and to the IRS each year. IRS: About Form 1099-INT, Interest Income. Accessed October 2026.