Treasury Bill Yield vs HYSA Tax-Equivalent Yield Calculator
Calculate after-tax interest and Tax-Equivalent Yield (TEY) between state-tax-exempt US Treasury Bills and taxable HYSAs.
What Are Your Yield and Tax Parameters?
What Is Your Projected Tax-Equivalent Yield Output?
What Is The Dual-Tax Exemption Yield Arbitrage Framework?
Objective: Determining after-tax yield parity between state-tax-exempt US Treasury Bills and fully taxable High-Yield Savings Accounts.
- Step 1: Determine Effective State Surtax: Identify your combined marginal state and local income tax rate under current residency statutes.
- Step 2: Calculate Tax-Equivalent Yield (TEY): Inflate nominal Treasury yields using the statutory formula TEY = TBill_Yield / (1-State_Rate) to find the breakeven bank rate.
- Step 3: Allocate Cash Equivalents: Reallocate commercial high-yield deposits into direct Treasury bills whenever the commercial APY falls below the computed TEY threshold.
How Does State Tax Exemption Impact Treasury vs HYSA Tax-Equivalent Yield?
Comparison across statutory state tax jurisdictions assuming a 35.0% federal marginal bracket plus 3.8% NIIT (38.8% total federal rate). State tax exemption authorized by 31 U.S.C. Section 3124.
| State Jurisdiction | Top State Rate | Combined HYSA Tax | 4.80% T-Bill Net Yield | Tax-Equivalent HYSA Yield |
|---|---|---|---|---|
| California | 13.30% | 52.10% | 2.94% | 6.13% TEY |
| New York | 10.90% | 49.70% | 2.94% | 5.64% TEY |
| New Jersey | 10.75% | 49.55% | 2.94% | 5.62% TEY |
| Massachusetts | 9.00% | 47.80% | 2.94% | 5.46% TEY |
| Texas / Florida / Washington | 0.00% | 38.80% | 2.94% | 4.80% (Parity) |
How Do 31 U.S.C. Section 3124 Statutory Exemption Mechanics Work?
Title 31, United States Code, Section 3124 explicitly prohibits states and municipal jurisdictions from imposing property, income, or franchise taxes on obligations of the United States Government.
For high-net-worth operators, family offices, and corporate treasuries holding significant cash allocations, buying short-duration Treasury Bills directly eliminates state tax leakage, locking in a substantial risk-free premium over commercial bank cash equivalents.
What Are the Frequently Asked Questions Regarding Treasury Yields?
Are Treasury Bills exempt from federal income taxes?
No. Treasury Bills are 100% subject to federal income taxes and the 3.8% Net Investment Income Tax (NIIT). They are ONLY exempt from state and local municipal income taxes.
How does maturity affect the state tax exemption?
All direct Treasury obligations (4-week, 8-week, 13-week, 26-week, and 52-week T-Bills, as well as Treasury Notes and Bonds) enjoy identical statutory state tax exemption regardless of duration.
Do Treasury Money Market Funds (MMFs) also qualify?
Yes, provided the fund meets state statutory requirements (in California, New York, and Connecticut, funds must hold at least 50% direct US government obligations at each quarter-end to pass through the state tax exemption).