Tax-equivalent yield compares annual interest cash income after the entered taxes. It does not make two bonds economically identical. Compare cash yields on the same annual basis; a coupon yield and a yield-to-maturity quote are different measures.
How the tax-equivalent yield calculator works
First compute each instrument’s effective tax burden from its selected exemption and entered rates. Positive cash income is reduced by its own burden. Then divide the selected net yield by the fraction retained on the fully taxable alternative. The comparison table shows actual net yields, not a gross taxable equivalent mislabeled as net income.
Inputs and what they mean
The default uses independent federal and state taxes. The optional deduction convention assumes the full marginal state-tax payment is deductible federally; it does not test itemization, SALT caps or phase-outs. Manual effective rates allow an independently established tax burden. Enter NIIT exposure only when applicable; federally exempt interest has no NIIT in this model. Additional effective AMT on exempt interest is an assumption, not a calculation of total AMT liability.
Limits and edge cases
Zero yield, zero tax and zero principal remain valid. A 100% effective taxable burden gives no finite ordinary gross equivalent for positive selected net income. Negative cash yields remain signed with no assumed loss credit. The model excludes capital gains, market discount, original issue discount, default, changing tax brackets and reinvestment. Verify state exemption, issuer terms and tax eligibility separately. Source year records your assumption year, not an official bracket lookup.