Calculating your tax equivalent yield is straightforward once you know the Tax Equivalent Yield formula and what each input means. This guide explains the method in plain language, walks through a manual calculation, and gives worked examples you can follow — then you can do it instantly with the Tax Equivalent Yield Calculator.
What is Tax Equivalent Yield?
The Tax Equivalent Yield calculation tells you your tax equivalent yield from a few simple inputs. The figure you are solving for here is the tax equivalent yield, expressed in percent.
The Tax Equivalent Yield formula
The core formula is:
Tax equivalent yield = Tax-free yield ÷ (1 - Your tax rate ÷ 100)Here is what each input means:
- Tax-free yield — a percentage, such as an annual rate. Example: 5%.
- Your tax rate — a percentage, such as an annual rate. Example: 3%.
How to calculate it step by step
- Write down the tax-free yield (for example, 5%).
- Write down the your tax rate (for example, 3%).
- Apply the formula above to get your tax equivalent yield.
- Double-check the result with the Tax Equivalent Yield Calculator.
Worked examples
Example 1
| Input / Output | Value |
|---|---|
| Tax-free yield | 5% |
| Your tax rate | 3% |
| Tax equivalent yield | 7.1429% |
With tax-free yield of 5% and your tax rate of 3%, the tax equivalent yield works out to 7.1429%.
Example 2
With tax-free yield of 1% and your tax rate of 3%, the tax equivalent yield works out to 14.2857%.
| Result | Value |
|---|---|
| Tax equivalent yield | 14.2857% |
Example 3
With tax-free yield of 2.5% and your tax rate of 3%, the tax equivalent yield works out to 3.5714%.
| Result | Value |
|---|---|
| Tax equivalent yield | 3.5714% |
Tips for an accurate result
- Keep your units consistent — mixing, say, months with years or grams with kilograms is the most common source of error.
- Round only at the very end. Rounding inputs early can shift the final answer noticeably.
- Re-run the numbers whenever an input changes, rather than estimating from an old result.
- Annual rates must be converted to the period you are calculating for (for example, divide an annual rate by 12 for a monthly figure).
Prefer not to do the maths by hand? — the Tax Equivalent Yield Calculator does it instantly, for free, with the formula and a worked example built in.
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