Tax Strategy · Calculator
Treasury Tax-Equivalent Yield Calculator
US Treasury interest is exempt from state income tax. See the yield a bank CD or corporate bond would need to match a Treasury's after-tax return in your state — and whether a Treasury beats a fixed annuity after taxes.
Your Inputs
Tax-Equivalent Yield
Your 4.30% Treasury is worth 0.00% to a taxable investor
Because Treasury interest is exempt from 5.0% state tax, a fully taxable investment (like a bank CD) would need to yield 4.53% to match it after taxes — a +0.23 point edge from the Treasury's tax advantages.
Treasury Yield
4.30%
NIIT (3.8%)
Off
After-Tax (CD)
4.08%
Tax-Equiv Yield
0.00%
A CD at the same 4.30% rate keeps only 4.08% after tax in your state — the Treasury beats it by 0.21 points after tax.
Illustration only. Treasury interest is exempt from state/local tax. TEY = yield ÷ (1 − state rate). Consult a qualified tax advisor.
How Your 4.30% Treasury Compares Across States
Same Treasury — the higher your state tax, the more the Treasury's state-tax exemption is worth.
| State Tax Level | State Rate | Treasury Yield | After-Tax (CD) | Tax-Equiv Yield | Edge |
|---|---|---|---|---|---|
| No state tax (TX, FL, NV) | 0.0% | 4.30% | 4.30% | 4.30% | +0.00 pts |
| Low (PA, IN, OH) | 3.5% | 4.30% | 4.15% | 4.46% | +0.16 pts |
| Medium (MA, NC, VA) | 5.0% | 4.30% | 4.08% | 4.53% | +0.23 pts |
| High (NY, NJ) | 10.9% | 4.30% | 3.83% | 4.83% | +0.53 pts |
| Very high (CA) | 13.3% | 4.30% | 3.73% | 4.96% | +0.66 pts |
Treasury Tax-Equivalent Yield, Explained
US Treasury interest is exempt from state and local income tax. That makes a Treasury more valuable than its headline yield suggests if you live in a state with an income tax — and the calculator above shows exactly how much more. The tax-equivalent yield (TEY) is the yield a fully taxable investment (a bank CD or corporate bond, taxed at the state level) would need to pay to match the Treasury's after-tax return. For high earners, the calculator also accounts for the 3.8% Net Investment Income Tax (NIIT) that applies to taxable investment income above $200,000 of modified adjusted gross income ($250,000 married filing jointly).
The Treasury TEY Formula
TEY = Treasury Yield ÷ (1 − State Rate − NIIT)
The Treasury's yield is untouched by state tax (it's exempt). A fully taxable investment like a CD loses state tax plus, for high earners, the 3.8% NIIT. Divide the Treasury yield by what the taxable investment keeps after those taxes, and you get the yield a CD would need to match the Treasury dollar-for-dollar. If you earn over $200,000, toggle the NIIT button on the calculator to include the 3.8% surtax.
Why Treasuries Beat CDs in High-Tax States
A bank CD is taxed at the state level (and subject to the 3.8% NIIT for high earners). A Treasury is exempt from state tax. So in a high-tax state like California (up to 13.3%), New York (up to 10.9%), or New Jersey (up to 10.75%), a Treasury with a lower advertised rate can actually beat a CD with a higher advertised rate after taxes. The state-tax exemption is the Treasury's hidden edge — and it grows with your state rate.
If you live in a state with no income tax — Texas, Florida, Nevada, Washington, South Dakota, Wyoming, Alaska, or Tennessee — the Treasury's state-tax exemption gives you no advantage, and its TEY equals its nominal yield. In that case a CD or fixed annuity with a higher headline rate wins outright.
Treasury vs. Fixed Annuity After Tax
A Treasury and a fixed annuity (MYGA) are both safe, principal-protected, and pay a guaranteed rate — but they're taxed differently:
- Treasury: State-tax-exempt. Best for short-term holds in high-tax states. Subject to the 3.8% NIIT if you earn over $200,000.
- Fixed annuity (MYGA): Tax-deferred — no tax until withdrawal — but taxed at the state level when you do withdraw. Best for longer holds where tax deferral lets gains compound.
- Headline rates: Fixed annuities often pay 0.5–1.5% more than Treasuries of similar maturity, which can overcome the Treasury's state-tax edge.
The right choice depends on your state, your tax bracket, how long you plan to hold, and whether you need liquidity. Use the calculator above to see your exact TEY, then compare to today's fixed annuity rates.
Frequently Asked Questions
Are Treasury bonds really exempt from state tax?
Yes. Interest on US Treasury bills, notes, and bonds is exempt from state and local income tax under federal law. This applies in all 50 states.
What is the Net Investment Income Tax (NIIT)?
The NIIT is a 3.8% surtax on investment income that applies to taxpayers with modified adjusted gross income (MAGI) above $200,000 (single) or $250,000 (married filing jointly). It applies to interest, dividends, capital gains, and other investment income. Toggle the 'Earn over $200,000' button on the calculator to include it.
What if I live in a no-income-tax state?
If your state has no income tax (TX, FL, NV, WA, SD, WY, AK, TN), the Treasury's state-tax exemption gives you no benefit, and its tax-equivalent yield equals its nominal yield. A CD or fixed annuity with a higher headline rate will beat it outright.
Does this apply to Treasury ETFs and mutual funds?
Partially. A Treasury ETF or fund that holds US Treasuries passes through a portion of its income as state-tax-exempt, but the fund may also hold non-Treasury securities. Check the fund's tax breakdown — only the Treasury-derived portion is state-exempt.
Are TIPS (Treasury Inflation-Protected Securities) also state-tax-exempt?
Yes, the interest (coupon) payments from TIPS are state-tax-exempt. However, the inflation adjustments to principal are taxed each year as they accrue, even though you don't receive them until maturity or sale.
How is this different from a municipal bond's tax-equivalent yield?
A municipal bond is exempt from federal tax (and often state tax in the issuing state), so its TEY uses the simpler formula: yield ÷ (1 − tax). A Treasury is exempt from state tax, so its TEY is: yield ÷ (1 − state rate − NIIT). The Treasury TEY is smaller than a muni TEY at the same yield because a muni avoids federal tax entirely.
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Illustration only. Tax-equivalent yield compares a US Treasury (state-tax-exempt) to a fully taxable investment (state taxed, plus 3.8% NIIT for earners over $200,000) to show the yield needed to match the Treasury's after-tax return. Actual tax treatment depends on your individual circumstances — consult a qualified tax advisor. Annuital is a DBA of Small Business Insurance Agency, Inc., a Massachusetts licensed insurance agency. Products not available in CA or NY.