Compare a taxable yield with a tax-free muni yield after your tax rate.
Compares a taxable yield after tax against a tax-free municipal yield to show which pays more.
A taxable yield is reduced by tax, so its after-tax value is the yield times one minus your tax rate, while a qualifying municipal bond yield is generally free of federal tax. Comparing the after-tax taxable yield with the muni yield reveals which actually keeps more in your pocket. This is the same logic behind a tax-equivalent yield, viewed from the after-tax side.
The higher your tax rate, the more a tax-free muni yield is worth relative to a taxable alternative, which is why munis appeal most to higher-bracket investors. At low tax rates, a higher taxable yield often wins even after tax. This tool uses a single rate and does not model state tax treatment, the alternative minimum tax, or differences in credit risk between the investments.
Because a tax-free yield avoids tax entirely, its advantage grows as your tax rate rises. At lower brackets a higher taxable yield can still come out ahead.
No, it uses one rate and ignores state and local tax, which can make in-state munis more attractive. Your actual comparison may differ.
No, credit quality, maturity, and liquidity differ between taxable and municipal bonds. A higher after-tax yield alone does not make an investment better.
See the exact formula and a worked example on our methodology page.