Tax-Equivalent Yield Calculator

THE NUMORIX GUIDE

How to use the Tax Equivalent Yield Calculator

Last reviewed September 14, 2026

What this calculator does

The intended comparison is taxable-equivalent yield = tax-exempt yield / (1 - marginal tax rate).

Formula and method

The intended comparison is taxable-equivalent yield = tax-exempt yield / (1 - marginal tax rate). The engine converts taxRate to a decimal but then multiplies the entered muniYield by 100 at the end, even though the UI labels muniYield as a percent. That unit mismatch materially scales the displayed result.

Variables and inputs

Enter municipal bond yield as a percent and marginal tax rate as a percent. The UI defaults to 3.5 and 32. The engine uses taxRate / 100 in the denominator, but treats the 3.5 input as a decimal-sized number before multiplying the result by 100.

Worked example

With a 3.5% municipal yield and a 32% tax rate, the conventional calculation is 3.5% / (1 - 0.32) = 5.147%, or about 5.15%. The current engine computes (3.5 / 0.68) x 100 = 514.71% and displays that value, so the output exposes the percent-unit bug rather than a usable yield comparison.

How to interpret the result

The economic idea is to compare a tax-free yield with the taxable yield needed to leave the same after-tax amount. In the current implementation, ordinary percent inputs produce an output that is 100 times too large, and its interpretation labels will therefore be misleading.

Common mistakes to avoid

Do not compare the displayed 514.71% result with a bond quote. Do not enter 0.035 to work around the form without documenting the change; the UI says percent and the engine's output convention is inconsistent. Use a marginal tax rate that actually applies to the interest being compared.

Assumptions and limitations

The route ignores federal, state, and local tax interactions, alternative minimum tax, tax-exempt eligibility, capital gains, liquidity, credit risk, duration, fees, and changing brackets. Most importantly, the current percent scaling must be corrected or independently recalculated before the result is used.

Sources and references

Frequently asked questions

What is the conventional tax-equivalent-yield formula?

For a tax-exempt yield expressed as a percent, divide that yield by 1 minus the marginal tax rate as a decimal. A 3.5% yield at 32% gives about 5.15%, before considering other taxes and fees.

Why does the page show an extremely large percentage?

The engine multiplies the entered 3.5 percent-number by 100 after dividing by 0.68. That produces 514.71% instead of the conventional 5.15%, so the displayed value should not be used as-is.

Which tax rate belongs in the comparison?

Use the marginal rate applicable to the taxable interest being compared, including relevant jurisdictional rules. A person's effective rate or a different income bracket may not be the right input.