Tax-Equivalent Yield Calculator
A 5% CD isn't the same as a 5% muni bond. Compare after-tax yields across CDs, municipal bonds, Treasury bonds, and corporate bonds based on your tax bracket.
Best After-Tax Yield
4.33% — Corporate Bond (fully taxable)
| Investment | Nominal Yield | After-Tax Yield | Tax-Equivalent Yield |
|---|---|---|---|
| CD / HYSA (fully taxable) | 5% | 3.61% | 5% |
| Municipal Bond (federal tax-exempt) | 3.8% | 3.61% | 6.93% |
| Treasury Bond (state tax-exempt) | 5% | 3.8% | 5.26% |
| Corporate Bond (fully taxable) | 6% | 4.33% | 6% |
How each investment is taxed
The tax treatment — not just the stated yield — is what determines what you actually keep.
| Investment | Federal income tax | State income tax | 3.8% NIIT |
|---|---|---|---|
| CD / HYSA | Taxable | Taxable | Counts toward NIIT |
| Treasury bond / bill / note | Taxable | Exempt (31 U.S.C. §3124) | Counts toward NIIT |
| Municipal bond | Exempt (IRC §103) | Exempt if in-state; usually taxable if out-of-state | Excluded from NIIT |
| Corporate bond | Taxable | Taxable | Counts toward NIIT |
Market discount and any capital gain from selling a bond before maturity are still taxable, even on an otherwise tax-exempt municipal bond.
Tax-equivalent yield table (2026 federal brackets)
This shows the fully-taxable yield a CD or corporate bond must beat for the muni to win, federal tax only — state tax pushes the equivalent even higher.
| Muni yield | 22% bracket | 24% bracket | 32% bracket | 35% bracket | 37% bracket |
|---|---|---|---|---|---|
| 3.00% | 3.85% | 3.95% | 4.41% | 4.62% | 4.76% |
| 3.50% | 4.49% | 4.61% | 5.15% | 5.38% | 5.56% |
| 4.00% | 5.13% | 5.26% | 5.88% | 6.15% | 6.35% |
| 4.50% | 5.77% | 5.92% | 6.62% | 6.92% | 7.14% |
| 5.00% | 6.41% | 6.58% | 7.35% | 7.69% | 7.94% |
Worked example
Frequently asked questions
What is tax-equivalent yield and how is it calculated?
Tax-equivalent yield (TEY) converts a tax-exempt or partially tax-exempt bond's yield into the yield a fully taxable bond (like a CD) would need to match after tax. Formula: TEY = tax-exempt yield ÷ (1 − combined tax rate). For a muni bond, the combined rate is your federal rate, since munis are exempt from federal tax under IRC §103. For a Treasury bond, the combined rate excludes state tax, since Treasury interest is exempt from state and local tax under 31 U.S.C. §3124.
Are municipal bonds always the better choice in a high tax bracket?
No. TEY only tells you the breakeven point — you still need to compare it against what CDs, Treasuries, and corporate bonds are actually paying right now. Corporate and Treasury yields often run 1–2 percentage points above muni yields, which can outweigh the tax exemption even in the top 37% bracket. Also watch for private-activity municipal bonds, which can trigger the Alternative Minimum Tax (AMT) and erode part of the benefit, and for lower credit quality among some municipal issuers.
Why are Treasury bonds attractive in high-income-tax states like California or New York?
Treasury interest is exempt from state and local income tax under 31 U.S.C. §3124, even though it's fully taxable federally. In a high state-tax state, that exemption alone can make a Treasury's after-tax yield beat a CD paying the same nominal rate. For example, a 4% Treasury bond for someone in the 32% federal bracket and a 9.3% state bracket (like California) has a tax-equivalent yield of about 4.41% against a fully taxable CD or corporate bond.
Does the 3.8% Net Investment Income Tax (NIIT) change the math?
Yes. Above $200,000 MAGI (single) or $250,000 MAGI (married filing jointly), an extra 3.8% NIIT surtax applies to CD, Treasury, and corporate bond interest under IRC §1411. Municipal bond interest is excluded from net investment income for NIIT purposes, so it's unaffected — which widens the effective gap in munis' favor once you're above the MAGI threshold.
What's the difference between in-state and out-of-state municipal bonds?
A muni bond issued by your own state (or its municipalities) is typically exempt from both federal and your state's income tax. A muni issued by another state is still exempt from federal tax under IRC §103, but is usually taxable by your home state as ordinary income. That state-tax hit lowers the after-tax yield on out-of-state munis relative to in-state ones — don't assume every muni bond is state-tax-free.
Is CD interest taxed differently from bond interest?
No. CD interest is ordinary taxable income at your federal and state marginal rates, the same as fully taxable bond interest such as corporate bonds or the federal portion of Treasury interest. It's taxed in the year it's credited to your account, even on a multi-year CD where the interest rolls back into principal instead of being withdrawn.