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Municipal Bond Tax Equivalent Yield

This calculator will estimate the tax-equivalent yield (TEY) for a municipal bond. Income generated from municipal bond coupon payments are not subject to federal income tax. In addition, if the bond was issued in your state of residence, you can also avoid state income taxes. Use this calculator to determine the yield required by a fully taxable bond to earn the same after tax income as a municipal bond.

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Definitions

Bond yield
This is the annual yield of your municipal bond or bond fund.

Estimated taxable income
This is your total income, after exemptions, adjustments, and deductions. We use this, along with your filing status, to determine your marginal income tax rate. You can use last year's tax return as a guide to what your taxable income will be for the current year. Your taxable income can be found on your income tax form 1040 or 1040A. Make sure to increase or decrease the amount to compensate for any changes to your current year's income.

Federal tax filing status
This is used, along with your taxable income, to determine your federal marginal income tax rate. The table below lists the federal income tax rates by income and filing status. We use this table to determine your marginal federal income tax rate.

Filing Status and Income Tax Rates 2010
Tax rateMarried filing jointly
or qualified widow(er)
SingleHead of householdMarried filing separately
10% $0 - 16,750 $0 - 8,375 $0 - $11,950 $0 - 8,375
15% $16,751 - 68,000 $8,376 - 34,000 $11,951 - 45,550 $8,376 - 34,000
25% $68,001 - 137,300 $34,001 - 82,400 $45,551 - 117,650 $34,001 - 68,650
28% $137,301 - 209,250 $82,401 - 171,850 $117,651 - 190,550 $68,651 - 104,625
33% $209,251 - 373,650 $171,851 - 373,650 $190,551 - 373,650 $104,626 - 186,825
35% over $373,650 over $373,650 over $373,650 over $186,825
Source: http://www.irs.gov/pub/irs-drop/rp-09-50.pdf

State income tax rate
Your marginal state income tax rate, if any.

Information and interactive calculators are made available to you as self-help tools for your personal independent use and are not intended to provide investment advice. We can not and do not guarantee their applicability or accuracy in regards to your individual circumstances. All examples are hypothetical and are for illustrative purposes. We encourage you to seek personalized advice from qualified professionals regarding all personal finance issues.