Things aren’t always as they seem. Due to their tax-exempt status, municipal bonds often have lower yields than taxable counterparts, such as Treasurys and corporate bonds*. Investors should examine taxable-equivalent yields, as well as applicable risks, to help determine whether muni bonds represent a good value. The good news is that our Tax-Equivalent Yield Calculator can help.


Determine your actual tax rate

Assuming maximum for all tax brackets, it's fair to assume your AGI is high enough in order for the Limitation on Itemized Deductions (PEASE) to apply to you. This limitation effectively adds 1.18% to your marginal tax rate. This assumption is reflected in the output.
*required
*required

Your marginal tax rate on investment incomeC

Federal Income
Tax Rate
%
+
State Income
Tax Rate (Net)†**
%
+
Local Income
Tax Rate (Net)
%
+
Health
Care Tax†***
%
+
Itemized Deduction
Limitations
%
Top Tax Rate
On Investment Income†D
%

If you could get the following yield on an in-state municipal bond:

 %

You'd need this yield to get equivalent after-tax income1

  • Out-of-State Munis Equivalent Yield

    %
    Output reflects the taxable yield required to equal the tax free yield of a municipal bond that is exempt from both state and federal income taxes.
  • U.S. Treasurys Equivalent Yield

    %
  • Other Fixed Income Equivalent Yield

    %

Tax Rate

  • Out-of-State Munis2

    %
    Out-of-state munis are generally exempt from federal taxes but not state and local taxes. Some out-of-state munis may also be exempt from state and local taxes depending on your state and the state of the bond you purchase.
  • U.S. Treasurys3

    %
    U.S. treasurys are generally exempt from state taxes but some exceptions may apply.
  • Other Fixed Income4

    %
    Other fixed income may include corporate bonds, floating-rate loans and other sovereign debt, among others.

Eaton Vance is a premier municipal bond manager and among the largest municipal investment teams in the U.S.

Gain insights into our outlook on the municipal market
by exploring our municipal bond Advisory Blog entries.

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The output of this calculator is for educational purposes only and should not be considered investment, legal or tax advice. The output is general in nature and may not apply to your individual tax situation and is not intended to serve as the primary or sole basis for your investment or tax-planning decisions.

For more individualized information, you should consult your tax advisor or investment professional. You bear sole responsibility for any decisions you make based on the output of this calculator. The calculator makes certain assumptions that may not apply to you. The calculator has many inherent limitations and individual results may vary.

Tax rates and tax laws are updated through February 1, 2017. Rates are sourced from www.taxfoundation.org

* Interest on municipal bonds is generally exempt from federal income tax; however, some bonds may be subject to the alternative minimum tax (AMT). Typically, state tax exemption applies if securities are issued within one's state of residence and, if applicable, local tax exemption applies if securities are issued within one's city of residence. The tax-exempt status of municipal securities may be changed by legislative process, which could affect their value and marketability.

The tax advantage of municipal bonds is eliminated if they are held in tax-sheltered accounts, such as a regular IRA, SEP or Qualified Plan, since (a) funds withdrawn from a tax sheltered account are taxed at distribution and if withdrawn prior to age 59 may be subject to a 10% federal tax penalty, without regard to whether the interest/principal originally came from a tax-exempt source, and (b) all qualified distributions out of Roth IRAs are tax-free, again regardless of origin. Speak to your Tax or Legal Advisor for further information.

The taxable equivalent yield (TEY) measures what an investor would have to earn (yield) on a taxable (or fully taxable) investment in order to match the yield provided by a tax-exempt municipal bond. The TEY is only one factor that should be considered when purchasing a security, and is meant to be used only as a general guideline when determining taxable equivalent yields for agency and treasury securities.

** The state tax rate shown here is net of the benefit of the federal itemized deduction.

*** In tax years beginning in 2013 and later, a 3.8 percent Net Investment Income Tax (NIIT) applies to individuals, estates and trusts that have net investment income above applicable threshold amounts. This is commonly referred to as the Health Care Tax.

The displayed rates have been rounded to the nearest hundredth of a percent.

1 Output reflects the taxable yield required to equal the tax free yield of a municipal bond that is exempt from both state and federal income taxes.

2 Out-of-state munis are exempt from federal taxes, but not state and local taxes. Some out-of-state munis may also be exempt from state and local taxes, depending on your state and the state of the bond you purchase. Private Activity Bonds are subject to AMT, and if a taxpayer is subject to the AMT they would be subject to federal tax.

3 U.S. Treasurys are exempt from state taxes.

4 Other fixed income may include corporate bonds, floating-rate loans and other sovereign debt, among others.