Most tax-equivalent yield calculators stop at the federal rate. For a New York City resident that leaves out the two layers of taxes that can decide the best fixed income investment for you. State tax, city tax, and for higher earners the federal net investment income tax, all land on the same interest. That means as many as four separate taxes on one CD!

The flip side is that the exemptions Treasuries and New York municipal bonds carry are worth more here than almost anywhere. This page shows the stack, and the calculator below runs it for your situation after you enter your income or tax rate.

Note: New York City residents will want to scroll down to the “advanced settings” and enable local taxes.

Take a New York City resident with $150,000 of taxable income, weighing a 4.30% CD against a 4.10% Treasury of similar maturity.

The CD’s interest is taxed three ways. 24% federal, 6.0% New York State, 3.876% city for 33.9% combined, leaving about 2.84% after tax.

The Treasury’s interest is exempt from both state and city tax, so only the 24% federal rate applies, leaving about 3.12%. The lower-yielding Treasury keeps more, and the reason is the two layers a federal-only tool never sees.

Three layers, sometimes four

New York State taxes interest as ordinary income across nine brackets, from 4% up to 10.9% at the very top; the 6.85% bracket is where most bond investors sit, covering taxable income from roughly $215,000 to $1.08 million for a single filer. New York City residents add a city income tax on top, reaching 3.876%. Yonkers residents pay a surcharge instead, set at 16.75% of their state tax. And for higher earners, the 3.8% federal net investment income tax lands on the taxable interest as well.

Stacked together, a high-income New York City resident can face federal, state, city and NIIT on the same CD interest. At a 35% federal bracket that is 35% + 6.85% + 3.876% + 3.8%, or about 49.5%. Every one of those layers except the federal is one a generic calculator ignores, and every one raises the value of an investment that escapes it.

What a New York municipal bond is really worth in the city

A New York municipal bond held by a New York City resident can be free of federal, state and city tax at once — triple tax-free. Its value rises with the combined rate. The table below shows the taxable yield a fully taxed investment would need to match a 4.0% triple-exempt New York municipal yield, by taxable income for a single New York City resident.

* New York’s tax-benefit recapture applies above $107,650 of New York AGI and raises the effective state rate toward the top bracket; the statutory rate is shown. Add the 3.8% federal net investment income tax for high earners; it applies to the taxable investment, not the municipal bond, and raises every figure further.

At $250,000 of income a 4.0% New York municipal bond does the work of a 6.98% taxable yield; at $500,000 it matches a taxable 7.37%, and adding the federal NIIT pushes the taxable equivalent higher still. This is the arithmetic behind the heavy New York bias in many municipal bond portfolios: nowhere does the combination of a high state rate and a city tax make a local exemption worth more.

The recapture that makes the calculator’s New York number a floor

New York does something most states do not. Once New York adjusted gross income passes $107,650, a supplemental tax phases out the benefit of the lower brackets, so a high earner’s income is effectively taxed closer to the top rate across the board rather than climbing through the brackets. The practical effect is that a high-income New Yorker’s real marginal state rate can sit above the statutory bracket figure.

The out-of-state municipal bond, and the Treasury detail

New York exempts its own municipal interest but taxes bonds issued by other states, at both the state and city level. A New York City resident who buys a New Jersey or Florida municipal bond keeps the federal exemption but owes New York State and city tax on the interest, which erases much of the reason to hold a municipal bond in the first place. Territory bonds — Puerto Rico, Guam, the U.S. Virgin Islands — are exempt in New York as everywhere. The calculator keeps in-state and out-of-state municipals as separate types, so do not model an out-of-state bond as a New York one.

On the Treasury side, one detail matters for New York fund holders. A direct Treasury is exempt from state and city tax, but a fund that holds Treasuries only passes the exemption through if it meets New York’s asset test: at least 50% of the fund’s assets in qualifying U.S. obligations at each quarter-end, the same rule California and Connecticut use. Miss the test and none of the fund’s income is exempt in New York, even if most of it came from Treasuries. Use the calculator’s Treasury / government fund type and enter the fund’s U.S.-obligation share; the New York preset applies the test.

Frequently asked questions

Is Treasury interest taxed in New York City?

No. Interest on direct U.S. Treasuries is exempt from New York State income tax, and because the city tax follows the state on interest income, it is exempt from New York City tax as well. Federal tax still applies. For a New York City resident, that combined state-and-city exemption is worth more than the state exemption alone is in most of the country.

Does New York City tax municipal bonds?

New York exempts interest on its own state and local bonds from both state and city tax, so a New York municipal bond held by a New York City resident is often free of federal, state and city tax at once. Interest on bonds from other states is taxable by both New York State and New York City. Bonds from U.S. territories such as Puerto Rico are exempt everywhere.

What is New York’s tax-benefit recapture, and does it change my after-tax yield?

For residents with New York adjusted gross income above $107,650, New York adds a supplemental tax that phases out the benefit of its lower brackets, so a high earner’s effective state rate climbs toward the top bracket rate applied to all income. It raises the state tax on a taxable bond and therefore the value of a tax-exempt one. The calculator uses statutory bracket rates and does not model the recapture, so for high earners it can understate New York tax slightly; treat its state figure as a floor.

Do New York City residents pay the 3.8% net investment income tax too?

Yes. The 3.8% net investment income tax is federal and stacks on top of state and city tax for higher earners, on taxable interest from CDs, corporate bonds and Treasuries. It does not apply to qualifying municipal bond interest. For a high-income New York City resident, that can mean four separate layers of tax on the same CD interest: federal, state, city and NIIT.

How much is a New York municipal bond worth compared with a Treasury for a New York City resident?

It depends on the yields and the resident’s combined rate, which is what the calculator compares. A New York municipal bond can be free of federal, state and city tax; a Treasury is free of state and city tax but not federal. At high combined rates the triple exemption is powerful, but municipal bonds carry credit and call risk that Treasuries do not, so after-tax yield is one input, not the whole decision.

Does the calculator include New York City tax automatically?

Not by default. Choose New York as your state, then open Advanced settings and select the New York City resident preset, which fills the city rate from the city’s schedule. There is a Yonkers preset as well. Without a local preset selected, the calculator models New York State tax only.

The bottom line for New Yorkers

New York’s stacked taxes cut both ways. They take a large bite out of ordinary interest, and they make every exemption — the state-and-city exemption on Treasuries, the triple exemption on New York municipal bonds — worth more than it would be almost anywhere else. A lower headline yield can easily be the higher after-tax return for a city resident, and the gap widens with income. None of that decides the question by itself: credit quality, maturity, liquidity and call features still differ, and a Treasury carries none of a municipal issuer’s risk. Run your own New York and city brackets in the calculator above, then weigh the rest.

For the full method and the other states, see the main tax-equivalent yield calculator, or the California version for a comparison with the other high-tax coast. The site’s compound interest calculator covers what a rate does over time.

This article is for educational purposes only and is not investment, tax or legal advice. The calculator produces estimates based on assumptions you provide and does not account for every provision of federal, New York State or New York City tax law, including the tax-benefit recapture. Confirm any figure that affects a decision with a qualified tax professional. See our disclaimers.