These 3 ETFs Pay Up to 14 Percent and Legally Shield Most of It From the IRS

The pitch behind NEOS ETF Trust’s income lineup is straightforward: pair an equity or Treasury portfolio with an options overlay written on broad-market indices, then let two provisions of the tax code do the rest.

Those two provisions — Section 1256 contract treatment and return-of-capital distribution character are why the NEOS S&P 500 High Income ETF (CBOE:SPYI), the NEOS Nasdaq-100 High Income ETF (NASDAQ:QQQI), and the NEOS Enhanced Income 1-3 Month T-Bill ETF (NYSEARCA:CSHI) keep attracting income-focused investors.

All three funds pay monthly, all three lean on options written on broad-based indices (SPX and NDX), and all three benefit from the same tax treatment. What differs is the return engine underneath: large-cap equity for SPYI, tech-heavy Nasdaq for QQQI, and short-duration Treasury bills for CSHI.

Why the Tax Treatment Actually Matters

SPX and NDX options are Section 1256 contracts. Any gains flow through as 60% long-term and 40% short-term capital gains regardless of how long the fund held the position. For a covered-call strategy that rewrites contracts every month, that split alone is a meaningful upgrade over ordinary-income treatment on premium harvested from single-stock or ETF options.

The second layer is return of capital (ROC). When a NEOS fund distributes more than its current-year taxable income, the overage is characterized as ROC on shareholders’ Form 1099-DIV, Box 3. That amount is not taxed in the year received. Instead, it reduces cost basis, deferring the bill until shares are sold.

The QQQI Form 8937 covering fiscal year ending May 31, 2025 shows just how significant this treatment can be. Monthly distributions were classified as return of capital at rates ranging from roughly 94.45% in mid-2024 to 98.86% in early 2025.

SPYI: The Flagship Large-Cap Income Play

SPYI is the anchor of the NEOS lineup and the largest by assets, with roughly $10.4 billion in net assets as of June 30, 2026. It owns a broad slice of S&P 500 constituents (Apple, Microsoft, Amazon, Alphabet, Broadcom, and the usual mega-cap suspects dominate the book) and overlays SPX call options to harvest premium each month.

The underlying mechanism is important here. Because the calls are written on the SPX index rather than on the underlying equity basket, the fund keeps direct participation in stock price appreciation while collecting premium on a separate index derivative. The overlay is described as data-driven, meaning strike selection and coverage ratios flex based on volatility conditions rather than a rigid at-the-money rule.

The distribution profile is consistent. SPYI pays monthly, most recently $0.5423 on the August 19, 2026 ex-date, with a trailing 12-month total of $6.33 and an annualized forward run rate of $6.51. Against a share price near $53.56, that lands in the low double-digit yield range. Total return has kept pace as well, with the fund up roughly 10% year-to-date and 17% over the past year.

The tradeoff is that SPYI will lag a straight S&P 500 index fund in a runaway bull market because the short calls cap upside. That is the cost of the monthly income check.

QQQI: Where the 14% Headline Lives

QQQI is the tech-tilted cousin, and it is the fund that most directly justifies the 14% yield figure in the title. Higher Nasdaq-100 volatility translates into richer NDX option premiums, which flow through as fatter monthly distributions.

Recent payouts back that up. The August 19, 2026 distribution was $0.6518, the trailing 12-month total was $7.65, and the annualized forward figure is $7.82.

The underlying portfolio is what you would expect from a Nasdaq-100 vehicle: NVIDIA at 7.7% of net assets, Apple at 6.6%, Micron at 5.6%, Microsoft at 4.4%, and AMD at 4.1%, with the balance in the familiar large-cap technology, semiconductor, and platform names. The options overlay is visible in the fund’s holdings as short NDX call positions, sized to generate premium without fully capping upside on the equity book.

QQQI has grown quickly, reaching roughly $13.1 billion in net assets as of June 30, 2026, and total return has kept pace, with the fund up around 11% year-to-date and 18% over the last year.

The tradeoff is that the same volatility that pumps up the yield also means bigger drawdowns during tech selloffs. Anyone using QQQI as an income anchor should size their position accordingly.

CSHI: The Overlooked Cash Sleeve

CSHI is the contrarian pick, and it exists to solve a specific problem: SGOV and BIL are fine parking spots for cash, but their income is ordinary interest, fully taxable at the federal level.

CSHI takes the same 1-to-3 month T-bill base and layers a data-driven SPX put-spread overlay on top. The put-spread premium is Section 1256 income, which means the incremental yield above a plain T-bill fund carries the 60/40 capital-gains character instead of the ordinary-income treatment.

The numbers reflect a genuine yield pickup. Recent monthly distributions have run around $0.19 to $0.21, with an annualized forward figure of $2.48 against a share price near $49.60. Total return is what you would expect from a low-volatility cash proxy: up about 3% year-to-date and 5% over the past year. Expenses run 0.38%, which is higher than a plain T-bill ETF but reasonable given the options work.

The tradeoff is that the put-spread overlay is not free. In sharp equity drawdowns, the short-put leg can generate losses that offset some of the T-bill income. CSHI works as a yield-enhanced cash alternative, but it carries equity-linked risk that insured cash accounts do not.

Which One Fits Which Investor

The choice among the three is less about which is best and more about what job the money is doing.

• SPYI suits taxable investors who want S&P 500 exposure with a monthly paycheck and are willing to trade some capped upside for a distribution rate that sits well above what other premium income funds typically pay.
• QQQI is for investors who want the biggest headline yield and can stomach Nasdaq-level volatility. It is the most direct answer to the “up to 14%” question, while offering the Section 1256 and ROC advantages that other equity-linked note ETFs do not provide.
• CSHI is the sleeper. Anyone parking cash in SGOV or BIL who also holds a taxable brokerage account should at least understand what the SPX put-spread overlay is doing, because the tax character of the incremental yield is meaningfully better than plain T-bill interest.

The common thread is that return of capital defers tax rather than eliminating it. While basis gets reduced, the bill eventually comes due at sale. For retirees drawing income and holding shares indefinitely (the same audience we had in mind when we compiled seven monthly dividend payers in a free report), that deferral can be worth real money. For traders rotating positions frequently, the benefit shrinks. Match the tool to the timeline.

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