Real after-tax return calculator
A nominal yield is taxed in full, then what survives is deflated. Do those two steps in that order and a respectable-looking yield in a taxable account can quietly come out below zero.
Worked example — Real return after tax and inflation: +0.41%. On a 4.5% yield at a 24% marginal rate with 3% inflation
High-yield savings, today: The realistic median case most visitors are actually holding right now.
Multi-year comparison 5
| Wrapper | Nominal value | Tax paid | Value given up | Real value | Real return a year |
|---|---|---|---|---|---|
| Taxable, interest taxed every year | $195,925 | $30,292 | $45,246 | $108,479 | +0.41% |
| Tax-deferred, taxed once at exit | $207,290 | $33,881 | $33,881 | $114,772 | +0.69% |
| Tax-free | $241,171 | $0 | $0 | $133,531 | +1.46% |
Deflated by an assumed 3% a year, a total price-level factor of ×1.806, equivalent to 3.00% a year. Deferring the tax is worth $6,292 in real terms here, because the annually taxed account compounds on the after-tax yield while the deferred one compounds on the full yield and settles once at the end. The two money columns are different questions: the annually taxed account hands over $30,292 in tax and finishes $45,246 behind the tax-free one, and the difference between those two figures is the growth the paid tax never went on to earn.
Real after-tax return at common yields and tax brackets
Tax is charged on the whole nominal gain, then inflation is divided out of what is left. At a fixed 3% inflation, here is the real after-tax return at common yields and brackets.
| Nominal yield | 12% bracket | 24% bracket | 32% bracket |
|---|---|---|---|
| 3% | -0.35% | -0.70% | -0.93% |
| 4% | +0.50% | +0.04% | -0.27% |
| 5% | +1.36% | +0.78% | +0.39% |
| 6% | +2.21% | +1.51% | +1.05% |
Is a 4.5% CD actually losing you money?
At a 4.5% yield, a 24% marginal tax rate, and 3% inflation, the real after-tax return is +0.41%, a gap of 41 basis points from breaking even. Tax comes off the whole 4.5% first, leaving 3.42%, and inflation is then divided out of that. The yield needed to stand still at this rate and this bracket is 3.95%, not 3%: the tax on the inflation compensation alone pushes the required yield up by 0.95%.
Two shortcuts, and one of them flips the sign
Most calculators for this query compute (n − i)(1 − t): deflate first, then tax. That taxes only the real gain, which is not what happens, and on the 4.5%/24%/3% scenario above it prints a different sign than the true answer. The gentler shortcut, n(1 − t) − i, gets the order right and then subtracts where it should divide.
| Method | Formula | Real return | Error |
|---|---|---|---|
| Exact | (1 + n(1 − t)) / (1 + i) − 1 | +0.41% | Reference |
| Deflate first, then tax | (n − i)(1 − t) | +1.14% | +73 bps |
| Tax first, then subtract | n(1 − t) − i | +0.42% | +1 bps |
The next question after this one
Tax-equivalent yield calculatorCalculatorApply the same after-tax logic across instruments, with state tax and NIIT handled per instrument.Open nextOther questions
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