TIPS Calculator
The TIPS, the inflation you expect, and your tax rate
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Fill in the fields on the left and this updates as you type.
Know what this estimate is based on
- Jurisdiction
- General mathematical model
- Scope and limitations
- Educational estimate only. Confirm the assumptions, current rules, fees, and rounding that apply to your situation before making a decision.
- Source links checked
- Jul 30, 2026
Built and regression-tested by Smart Tools Lab. It has not been individually reviewed by a licensed financial, tax, or legal professional.
How to use
- 01
Enter the face amount of the TIPS: its principal before any inflation adjustment.
- 02
Enter the real coupon rate on the security. For scale, the 10-year TIPS real yield was 2.60% on 14 September 2026.
- 03
Enter the inflation you expect each year until maturity and the years left. Treasury sells TIPS with 5-, 10- and 30-year terms.
- 04
Enter your federal tax rate, or 0 if the TIPS sits in an IRA or 401(k). Under advanced options, enter the price you paid per $100 of principal if it was not par.
- 05
Read the real yield after tax, then the table: the adjusted principal each year, the interest paid, the principal growth that is taxed, the tax and the cash left after it.
Formula
Adjusted principal after h half-years = face × (1 + annual inflation)^(h ÷ 2). Interest each half-year = adjusted principal × coupon rate ÷ 2. Taxable amount each year = the year's interest + (principal at the end of the year − principal at the start); federal tax = taxable amount × federal rate, with no tax when the taxable amount is below zero. Cash after tax each year = interest − tax. At maturity you receive the greater of the adjusted principal and the face amount. The real yield is the six-month rate at which the price paid equals the present value of every later payment restated in today's dollars (each divided by the growth in prices to its date), doubled to an annual figure as Treasury quotes it. The after-tax real yield uses the payments after tax.
Example
$10,000 of 10-year TIPS with a 2.60% real coupon is bought at par. Inflation is assumed at 3.4% a year and the owner pays a 22% federal rate. After year 1 the principal is $10,340. The year's interest is $267, and the $340 rise in principal is also taxable, so the tax is $133, leaving $133 of cash. By year 10 the principal is $13,970, 39.7% above face, the year's interest is $360 and the year's tax $180. Over the 10 years the bond pays $3,113 of interest and costs $1,558 of federal tax, $873 of it on principal growth not yet received. At maturity Treasury repays $13,970, which is $10,000 in today's dollars. The real yield is 2.60% before tax and 1.31% after, and the nominal yield before tax is 6.02%.
Definitions
- Adjusted principal
- A TIPS's principal after Treasury's inflation adjustments. It rises with CPI and falls with deflation, and interest is paid on it.
- Real coupon rate
- The fixed rate a TIPS pays every six months on its adjusted principal. Bought at par and held to maturity, it is the yield above inflation.
- Phantom income
- The yearly increase in a TIPS's principal, taxable each year in a taxable account although it is paid only at maturity.
- Deflation floor
- The guarantee that at maturity a TIPS repays at least its original principal, however far deflation has pushed the adjusted principal down.
- Original issue discount (OID)
- The tax category IRS Publication 550 uses for the increase in an inflation-indexed bond's principal, reported yearly on Form 1099-OID.
Good to know
How inflation reaches a TIPS: principal first, then interest
A Treasury Inflation-Protected Security works differently from an I bond. Its interest rate is fixed when it is issued, but the principal that rate is paid on moves with inflation. Treasury adjusts the principal using the Consumer Price Index, so it rises when prices rise and falls when they fall. Interest is paid every six months at the fixed rate on whatever the principal is at that moment, so the dollar amount of each payment moves with inflation too. Treasury sells TIPS with terms of 5, 10 and 30 years. Because the coupon is paid on inflation-adjusted principal, it is a real rate: the return above inflation for a buyer who pays par and holds to maturity. On this page's example, $10,000 of 10-year TIPS with a 2.60% coupon and 3.4% inflation reaches $10,340 of principal after one year and pays $267 of interest that year. By year 10 the principal is $13,970, 39.7% above face, and the year's interest is $360. Over the decade the bond pays $3,113 of interest, and at maturity Treasury repays the $13,970 of adjusted principal, which is $10,000 in today's dollars. That is the point of the security. Measured before tax, the example yields 2.60% above inflation and 6.02% in nominal terms, the figure to compare with an ordinary Treasury of the same term. On 14 September 2026, Treasury's daily yield curves put the 10-year Treasury at 4.97% and the 10-year TIPS real yield at 2.60%. Roughly, if inflation over the decade averages more than the gap between them, TIPS come out ahead; if less, the ordinary Treasury does. The Breakeven Inflation Calculator works that out. This page assumes one steady inflation rate. Actual inflation varies from year to year, which changes the path of principal and interest but not the principle: whatever CPI does, the principal follows it.
The yearly tax on inflation you have not received
The feature that most often surprises TIPS owners is the tax. In a taxable account, the increase in a TIPS's principal during the year counts as federal income for that year, even though Treasury pays it only when the security matures. IRS Publication 550 tells holders of inflation-indexed debt instruments other than I bonds to report the increase in inflation-adjusted principal as original issue discount, and the payer reports it on Form 1099-OID along with the interest. The result is tax on money you do not have yet, often called phantom income. On this page's example, year 1 pays $267 of interest in cash and adds $340 to principal. A 22% taxpayer owes tax on both, $133, which leaves $133 of cash from the year's interest. Every year works the same way, and over 10 years the tax on principal growth not yet received comes to $873 of a $1,558 federal tax bill. The higher inflation runs, the larger the tax bill relative to the cash paid, and with high enough inflation or tax rates the tax can exceed the interest, so that owning the security costs cash every year until maturity. The tax also lowers the real return. The example's 2.60% real yield before tax becomes 1.31% after the 22% federal tax, because the tax is levied on the inflation adjustment as well as on the real interest. There are two ways around the problem. Holding TIPS in a tax-deferred account such as an IRA or 401(k) removes the yearly bill entirely; on this page, a federal rate of 0 keeps the real yield at 2.60%. Alternatively, an I bond defers all its federal tax until it is cashed, though with a lower fixed rate and a $10,000 yearly limit. Either way, TreasuryDirect lists TIPS as free of state and local income tax.
The par floor, and what it does not protect
TIPS carry a guarantee that ordinary bonds do not: at maturity Treasury pays the inflation-adjusted principal or the original principal, whichever is greater. A stretch of deflation can pull the adjusted principal below face value, but it cannot make the final repayment smaller than the amount the security started with. Entering −1% a year of inflation on this page's example shows the floor at work. After 10 years the adjusted principal would be $9,044, and Treasury would repay $10,000 instead. Because prices have fallen, that $10,000 buys more than $10,000 did at purchase, which is why the real yield before tax rises to 3.49% in that scenario, above the 2.60% coupon. The floor has limits worth understanding. It applies only to the repayment at maturity. The interest paid along the way is always figured on the adjusted principal, so in deflation each payment shrinks: in that run, the yearly interest falls from $258 in year 1 to $236 in year 10. It also applies only to a security held to maturity. Before then TIPS trade in a market, and their price moves with real interest rates. A TIPS sold early can be worth less than you paid even when inflation has been positive, because rising real yields push prices down. And the floor protects the original principal, not the principal after years of inflation adjustments. A security that has built up large adjustments and then meets deflation can lose part of that gain, with only the original face value guaranteed. CPI-U rose 3.4% in the 12 months to August 2026, so for most buyers the floor is insurance against an unlikely event, while the yearly tax on inflation and the market price before maturity are the risks they actually meet.
TIPS, I bonds or an ordinary Treasury
Three Treasury securities answer the inflation question in different ways, and the right one depends on the account, the amount and how long the money can stay put. An ordinary Treasury note or bond pays a fixed nominal rate; on 14 September 2026 the 5-year yielded 4.80% and the 10-year 4.97%. You know exactly how many dollars you will receive, but inflation decides what they buy. A TIPS pays a fixed real rate, 2.40% on the 5-year and 2.60% on the 10-year that day, on principal that follows CPI, so you know roughly what your money will buy but not how many dollars you will receive. An I bond pays a fixed rate, 0.90% for bonds issued May to October 2026, plus an inflation rate that resets every six months. Against an ordinary Treasury, a TIPS comes out ahead if inflation over the term averages more than the gap between their yields, about 2.37 percentage points on the 10-year that day, and behind if it averages less. In effect you give up some expected return to insure against an inflation surprise; the Breakeven Inflation Calculator reads that market gap. Against an I bond, TIPS offer a much higher real rate and can be sold before maturity, but at a market price that may be below what you paid, and their yearly tax on principal growth suits an IRA or 401(k) far better than a taxable account. I bonds are limited to $10,000 a year per Social Security number and locked for 12 months, but they defer federal tax and never fall in value. Put simply: TIPS in a retirement account for long-term protection at a real rate, I bonds in a taxable account for a smaller sum of safe money you can leave alone for five years, and ordinary Treasuries when you need a known number of dollars on a known date. The Real vs Nominal Return Calculator converts any of these yields between nominal and real terms.
Frequently asked questions
How do TIPS work?
The principal of a TIPS rises with inflation and falls with deflation, and its fixed rate is paid every six months on that adjusted principal, so the interest moves too. At maturity Treasury pays the adjusted principal or the original principal, whichever is greater. On this page's example, $10,000 of TIPS with a 2.60% coupon grows to $13,970 of principal over 10 years at 3.4% inflation, and pays $267 of interest in the first year and $360 in the last.
What is phantom income on TIPS?
It is the yearly increase in principal, which counts as federal income in a taxable account even though you receive it only at maturity. IRS Publication 550 has you report it each year as original issue discount. In the example, year 1 adds $340 to principal and pays $267 of interest, so a 22% taxpayer owes $133 against $267 of cash. Over 10 years, tax on principal growth not yet received comes to $873.
Do states tax TIPS?
No. TreasuryDirect lists TIPS as free of state and local income tax. Federal tax is due each year on the interest and on any increase in principal, and a decrease in principal can reduce it.
What happens to TIPS in deflation?
The principal falls, and so does the interest paid on it, but at maturity you receive at least the original principal. In the example run at −1% a year, principal would fall to $9,044 after 10 years and Treasury would repay $10,000. Because that $10,000 buys more than it did at purchase, the real yield before tax rises to 3.49%. The floor applies only at maturity; a TIPS sold earlier gets its market price.
What is the real yield on TIPS after tax?
It is the return above inflation once the yearly federal tax is paid. In the example, the 2.60% real yield becomes 1.31% after a 22% federal tax, because the tax falls on the inflation added to principal as well as on the interest. In an IRA or 401(k), where nothing is taxed each year, the real yield stays at 2.60%.
Should I buy TIPS or I bonds?
Both follow CPI. An I bond defers its federal tax until you cash it, never falls in value and cannot be sold, but its fixed rate is 0.90% for bonds issued May to October 2026 and one Social Security number can buy only $10,000 a year. TIPS paid more above inflation on 14 September 2026, 2.40% for 5 years and 2.60% for 10, and can be sold before maturity, at a market price that may be below what you paid. In a taxable account they also bring the yearly tax on principal growth, which makes them a natural fit for a retirement account.
Why is the nominal yield so much higher than the coupon?
Because it includes inflation. The coupon is a real rate; the nominal yield adds what inflation does to principal and interest. In the example, a 2.60% real yield with 3.4% inflation is a 6.02% nominal yield before tax. Compare that with an ordinary Treasury of the same term, 4.97% for 10 years on 14 September 2026, to see which comes out ahead at your inflation assumption.