A municipal bond paying 3.5 percent looks sleepy next to a corporate bond paying 4.6 percent -- until taxes enter. Muni interest escapes federal income tax, and in-state munis dodge state tax too, while the corporate bond's interest gets taxed at your full marginal rate. The tax-equivalent yield translates the muni's sheltered payout into the taxable yield you would need to match it, and suddenly the sleepy bond wins.

The formula divides the muni yield by one minus your combined tax rate. At a 24 percent federal rate plus 5 percent state, the combined rate is about 27.8 percent, and 3.5 percent divided by 0.722 gives a 4.85 percent tax-equivalent yield -- better than the corporate bond's 4.6. This calculator runs that conversion, shows the federal-only break-even for comparison, and reports your combined rate so the assumptions stay visible.

The advantage scales with your bracket. In the top federal bracket with a high-tax state like California or New York, munis can beat taxable bonds by two full percentage points. In the 12 percent bracket with no state tax, they rarely win. Enter your actual marginal rates -- not your effective rate, a common mistake -- and let the tool tell you which side of the line you stand on.

With the pre-filled defaults — Municipal Bond Yield 3.5%, Federal Tax Rate 24%, State Tax Rate 5% — the Tax-Equivalent Yield Calculator returns Combined Tax Rate 27.80%, Tax-Equivalent Yield 4.848%, After-Tax Yield (TEY equivalent) 3.500%, Break-Even Taxable Yield (Federal only) 4.605%. Change any input and those results update instantly, so you can see exactly how each number you enter moves the answer.