GLOSSARY · TAX & ESTATE
Tax-equivalent yield
The taxable yield you would need to earn to match a tax-free yield after tax, used to compare municipal or Treasury income with fully taxable interest. The higher your tax rate, the more a tax-free yield is worth, so the same fund can be the better choice for one household and the worse for another.
Also called: taxable-equivalent yield, after-tax yield, municipal yield comparison, taxable equivalent yield, muni equivalent yield
FORMULA
Tax-equivalent yield = tax-free yield ÷ (1 − marginal tax rate)
COMPUTE IT WITH YOUR NUMBERS
LEARN IT PROPERLY
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SOURCES
- Publication 550, Investment Income and Expenses. Internal Revenue Service.
- Publication 550, Investment Income and Expenses (tax-exempt interest). Internal Revenue Service.