What's the effect of state income taxes?

If a Savings Bond is earning 3.60% and isn't subject to state income tax, what is the equivalent rate for an investment that is subject to state income tax?

Tom's response

The formula you're looking for is [savings bond rate] / ( 1 - [state tax rate]).

For example, if your state income tax rate is 5%:

• 1 - .05 = .95 (the percentage you get to keep after taxes)
• 3.6% / .95 = 3.789% (the equivalent taxable yield you'd need to equal the state-tax-free yield)