Forget the Headline Yield. This Nasdaq Income ETF Told the IRS Most of Your Payout Was Return of Capital
QQQI attracts investors with fat monthly payouts from Nasdaq-100 options, but what the fund quietly tells the IRS about those distributions should change how you think about every dollar you receive.
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People buy the NEOS Nasdaq-100 High Income ETF (NASDAQ:QQQI) for monthly income. It holds Nasdaq-100 stocks and sells call options against them to generate premium. QQQI recently paid $0.6339 per share in September. Its tax filing tells the IRS most of its payouts are return of capital, not income. Four related funds merit comparison: NEOS’s SPYI, Roundhill’s XPAY, and J.P. Morgan’s ROCQ and ROCY — all discussed below.
What QQQI Reported to the IRS
The NEOS Nasdaq-100 High Income ETF’s SEC Form 8937 for the fiscal year ending May 31, 2025 states that “a percentage of each such dividend was a return of capital in accordance with the IRS Section 301(c)(2).”
Per QQQI’s filing, roughly 94.45% of each 2024 monthly distribution and 98.86% of each 2025 monthly distribution were classified as nontaxable return of capital.
Return of capital lowers your cost basis by the per-share amount of each distribution. When you eventually sell, you owe capital gains tax on a lower basis. The yield you see is partly a return of your own principal, presented as income.
Return of Capital Pushes the Tax Bill Back
Return of capital means the fund returns part of your invested money. The tax code treats it separately from dividends. QQQI’s filing tells shareholders to “reduce the holder’s basis in the stock by the portion of distribution determined to be return of capital.” This amount appears in Box 3 of your 1099-DIV, according to NEOS Nasdaq-100 High Income ETF, SEC Form 8937.
Cost basis is what you paid for shares. Each dollar of return of capital reduces it by one dollar. You owe no tax on that portion when received. When you sell, your taxable gain is larger because it is calculated against that lower basis. The tax is deferred—not eliminated.
Deferral Helps Taxable Accounts Only
In a regular brokerage account, deferral has value. You control which year the tax lands in, and sales after more than a year typically qualify for capital gains rates instead of ordinary income rates. That control matters for managing taxable income year to year.
For IRA or 401(k) holders, the benefit goes away. These accounts don’t tax distributions when they come, so the income versus return of capital label is irrelevant. The basis adjustment has no effect inside the account. For retirement account holders, the label barely matters.
What SPYI, XPAY, ROCQ and ROCY Hold
As of June 30, 2026, QQQI reported net assets of $13.11 billion with NVIDIA as its largest holding at roughly 7%. The sister NEOS S&P 500 High Income ETF (NYSEARCA:SPYI) runs the same call-writing approach on the S&P 500, with $10.41 billion in net assets and Apple as the top holding at approximately 6.5%.
The J.P. Morgan Nasdaq Equity Core ETF (NASDAQ:ROCQ) reported $377.48 million in net assets as of June 30, 2026, with NVIDIA at 8.29%. Its S&P 500 counterpart, the J.P. Morgan S&P 500 Equity Core ETF (NASDAQ:ROCY), held $255.84 million, with NVIDIA at 8.19%.
Roundhill’s XPAY (NYSEARCA:XPAY) is built differently. It reported $155.36 million in net assets as of June 30, 2026, with 4.85% in a government money market fund and the rest in index options. XPAY gets exposure from option contracts rather than holding shares, so its payouts follow different tax rules than QQQI’s structure.
Check Each Fund’s Filings Every Year
Before buying, review the funds’ documents. The issuer’s Form 8937 reports how distributions affected basis. Section 19a-1 notices accompanying each payout give early estimates. Your 1099-DIV shows final classification. Note that 19a-1 figures are estimates and can change by year-end.
These percentages change annually. The QQQI figures above apply only to the fiscal year ending May 31, 2025, according to NEOS Nasdaq-100 High Income ETF, SEC Form 8937. Option premiums, realized gains, and portfolio turnover all shift the mix between income and return of capital each year.
Judge These Funds on What They Earn
Return of capital treatment is worth understanding before you buy, but it shouldn’t be the reason you buy. It delays a tax bill and doesn’t cancel it. For tax-advantaged investors, it does almost nothing. If you hold QQQI or its peers, judge them on total return, how their holdings fit your plan, and how their options strategy trades away upside. Look up the fund’s latest Form 8937 each year so you know what your monthly distribution really consists of.
Contact [email protected] for any questions or corrections.
Ryne Mauck is an investment writer covering exchange-traded funds, retirement planning, and portfolio strategy. Through his work at 24/7 Wall St. and other investment platforms, including Seeking Alpha, he aims to provide clear, research-driven insights that help investors make more informed decisions while maintaining a long-term approach to investing.
Ryne holds a B.Sc. in Finance and an M.A. in Political Science. He is a formerly registered Municipal Advisor Representative and has passed the Series 50, Series 63, and Series 65 exams. His articles are not intended to be, nor should they be interpreted as, financial advice.
