Calculator
T-Bill vs duration ETF tax-equivalent yield comparator
Interest from US Treasury bills and Treasury-only ETFs is exempt from state and local income taxes, whereas corporate bond ETFs and bank CDs are taxed at both federal and state levels. This calculator computes your true after-tax yield pickup and the rate move required to wipe out a duration ETF’s carry.
Tax-equivalent T-Bill yield
6.01%
Pre-tax yield a fully taxable fund must beat
- After-tax T-Bill yield
- 3.35%
- 3,347.50 net annual income
- After-tax bond ETF yield
- 2.90%
- 2,896.40 net annual income
- T-Bill net yield pickup
- +45.1 bps
- T-Bill wins after tax
- Duration break-even yield rise
- 47 bps
- 1-yr parallel rate rise that wipes out ETF carry
Formula
After-tax T-Bill yield = y_tbill × (1 − [t_fed + t_state × (1 − exempt%)])
Tax-equivalent yield = After-tax T-Bill yield ÷ (1 − (t_fed + t_state))
Duration break-even yield rise = After-tax ETF yield ÷ Modified duration
How to use it
Enter the 3-month or 6-month T-Bill yield, the competing bond ETF’s SEC yield, its expense ratio and modified duration, plus your marginal federal and state income tax rates.
Adjust the percentage of fund income derived from US Treasury obligations (100% for direct T-Bills, typically 95–100% for Treasury ETFs).
Assumptions and limits
- Models ordinary income tax on distributions; does not model capital gains tax on price changes.
- Uses first-order modified duration to estimate the parallel yield rise that offsets one year of after-tax carry.
Common questions
Do Treasury ETFs qualify for state tax exemption?
Yes, in most US states the portion of an ETF’s dividends derived directly from US Treasury securities is exempt from state income tax, though states such as California, New York and Connecticut require the fund to hold at least 50% in US government obligations.
What is the duration break-even yield rise?
It is the parallel increase in bond yields (in basis points) over one year that would cause enough mark-to-market price loss to erase the ETF’s entire after-tax annual yield.
For education only, not investment advice. Results depend entirely on the inputs and assumptions above; check important numbers independently.