No. of Recommendations: 9
I agree with Mark that there can be complications, but the basic formula for 'tax equivalent yield' is:
yield / (1 - exempted tax rate)

In the case of T-Bills, we'd be talking about state taxes.

Here in Mass we have a relatively simple, 5.3% flat state tax rate, or 0.053.

So for a 5% T-Bill, to use round numbers, we're looking at:
5 / (1 - 0.053) = 5 / .947 = 5.28%


You can also adjust for state taxes being deductible from federal taxes. Exempting interest income from state taxes lowers your deduction and raises your federal tax. Assume your marginal federal tax bracket is 28%

5 / (1 - 0.053(1 - 0.28)) = 5 / (1 - 0.053(.72)) = 5 / (1 - 0.038) = 5.20

California state taxes are up to 9.3%

Vickifool
Print the post  

Announcements

What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement