Tax-equivalent yield for new graduates: a practical guide
Tax-equivalent yield explained for new graduates, with a worked example, a checklist and the mistakes to avoid.
Why this matters for new graduates
A first full-time job brings the first real payslip, and understanding the deductions on it builds good habits early.
Worked example
Here is the calculation with sample figures. Change any number in the Tax-Equivalent Yield Calculator to run your own.
| Tax-free yield (%) | 3.5% |
| Tax rate (%) | 24% |
| Taxable-equivalent yield (%) | 4.61% |
|---|
Tax-equivalent yield: how it works
Tax-free bonds pay lower yields than taxable bonds. The tax-equivalent yield shows what a taxable bond would need to pay to match a tax-free one.
Divide the tax-free yield by 1 minus your marginal tax rate.
A second example with larger figures
Scaling the inputs up shows how the result moves. Percentages stay the same, so the tax grows in proportion to the amount it is applied to.
| Tax-free yield (%) | 3.5% |
| Tax rate (%) | 24% |
| Taxable-equivalent yield (%) | 4.61% |
|---|
Using the calculator step by step
- Open the Tax-Equivalent Yield Calculator.
- Enter your own figures on each numbered line.
- Set the rate to the one that applies to you. Defaults are examples, not advice.
- Read the result and the formula below it.
Key terms
- Exempt supply
- A sale that falls outside the tax entirely. No tax is charged and input tax usually cannot be reclaimed.
- Withholding
- Tax deducted at source, by an employer or payer, before the money reaches you.
- Reduced rate
- A lower rate that applies to specific categories, often essentials such as food, medicine or books.
- Deduction
- An amount subtracted from taxable income. It saves tax equal to the deduction times your marginal rate.
- Gross amount
- The amount after tax is added, which is usually what a consumer pays.
A quick checklist for new graduates
- Find your marginal rate.
- Calculate the equivalent yield.
- Compare like-for-like maturities and credit quality.
Common mistakes to avoid
- Using the effective rate instead of the marginal rate.
- Ignoring state tax exemptions.
Run your own numbers. The Tax-Equivalent Yield Calculator updates as you type and shows the formula it uses.
Frequently asked questions
Why should new graduates care about this?
A first full-time job brings the first real payslip, and understanding the deductions on it builds good habits early.
What is the quickest way to calculate it?
Use the Tax-Equivalent Yield Calculator: enter your figures and it shows the result and the formula.
Is this tax advice?
No. It is general information for planning. Rules differ by country and change over time, so confirm with your tax authority or a qualified adviser.
This article is general information for planning, not tax advice. Rates and rules change; confirm with your tax authority or a qualified adviser.