Quick Read
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QQQI pays 13.6% versus JEPQ's 11.3%, but both funds cap upside by selling covered calls on the Nasdaq-100.
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QQQ gained 23% last year while QQQI and JEPQ returned only 18% and 19%, proving the call overlay costs real upside in bull markets.
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QQQI classified between 94 and 99 percent of its distributions as return of capital, deferring taxes for long-term taxable holders but delivering no edge inside an IRA.
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NEOS Nasdaq-100 High Income ETF( NASDAQ:QQQI ) carries a trailing 12-month distribution yield of 13.6%, measured against its October 9, 2026 close. The better-known JPMorgan Nasdaq Equity Premium Income ETF( NASDAQ:JEPQ ) yields 11.3% on the same basis. Both pay 12 times a year, and both sell calls on the Nasdaq-100. So if the lesser-known fund pays more, why would anyone own the other one?
Start with what those figures are. Each one divides the past year's distributions by the share price, so it shows the past. Both are backward-looking payout measures. On forward annualized payouts, the two land at 13.5% and 11.1%, which looks a lot like the trailing numbers. Option income rises and falls with market volatility, and the checks move with it. JEPQ's latest payment was $0.57, down from $0.68 the month before.
Two Different Machines Generate These Payouts
Both funds rely on a covered call strategy. That means that they own stocks and sell someone the right to buy them at a set price by a set date. The buyer pays an upfront fee, called the option premium, and that premium funds the distribution. In exchange, any gains above the agreed price go to the buyer.
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JEPQ runs an actively managed stock portfolio selected from the Nasdaq-100, led by NVIDIA( NASDAQ:NVDA ) at 7%, with the next-largest position at 6%. It gets its option income indirectly, through equity-linked notes. These are bank-issued debt securities with a short Nasdaq-100 call built in, and they pass the premium back as coupons. Its June filing lists notes from BNP Paribas and other large banks, each worth roughly 1% of net assets. The fund takes on exposure to those banks, and note coupons generally reach shareholders as ordinary income.
QQQI owns the index stocks directly, with NVIDIA at 8%, and sells Nasdaq-100 index calls itself. Its filing shows two short NDX call positions. NEOS has built the fund to produce income in a tax-efficient manner . Index options count as Section 1256 contracts, and their gains are taxed 60% long-term and 40% short-term no matter how long the fund holds them.
The Global X Nasdaq 100 Covered Call ETF( NASDAQ:QYLD ) is the clear third option, and it was left out on purpose. It sells at-the-money calls against its entire portfolio, which hands away almost all of the upside. JEPQ and QQQI both keep more of the rally. JEPQ is also the giant here, with about $41 billion in net assets against roughly $13 billion for QQQI.
What QQQI's Own Tax Filing Shows
NEOS Investments' IRS Form 8937 for the fiscal year ending May 31, 2025, classified 94% of the June 26, 2024 distribution as a non-taxable return of capital. Every other payment that year looked much the same:
| Ex-Date (FY Ending May 31, 2025) |
Return of Capital Share |
|---|---|
| Jul. 24, 2024 |
94% |
| Aug. 21, 2024 |
94% |
| Sep. 25, 2024 |
94% |
| Oct. 23, 2024 |
94% |
| Nov. 20, 2024 |
94% |
| Dec. 24, 2024 |
94% |
| Jan. 22, 2025 |
99% |
| Feb. 26, 2025 |
99% |
| Mar. 26, 2025 |
99% |
| Apr. 23, 2025 |
99% |
| May 21, 2025 |
99% |
Return of capital brings down your cost basis, which is the purchase price the IRS uses to figure your gain when you sell. The filing tells shareholders to reduce their basis by the per-share amount and notes that the figure appears in box 3 of the 1099-DIV.
A lower basis means a bigger taxable gain on the day you sell. The tax moves to a later date, which is what tax deferral means. The tax still comes due eventually. Once basis reaches zero, any further return of capital is taxed as a capital gain.
The label comes from tax accounting. It can show realized option losses or harvested losses offsetting gains, so on its own it is weak evidence that the fund shrank. The filing covers only the fiscal year ending May 31, 2025. Tax character is set each year, and that breakdown says nothing about what 2026 distributions look like.
Who Actually Benefits From Deferral
The investor who gains most holds QQQI in a taxable brokerage account and plans to keep it for years. That person pays little tax on each payment as it comes, keeps that money working, and settles up at sale, possibly at long-term capital gains rates.
Inside an IRA, the advantage mostly goes away
Both Funds Trade Away Rally Gains
Over the past year, the Invesco QQQ Trust( NASDAQ:QQQ ) gained 23%. On a distribution-adjusted basis, JEPQ rose 19%, and QQQI rose 18%. Even with payouts counted, the call overlay held both of them back during a strong Nasdaq run.
Net asset value, or NAV, is the per-share worth of a fund's holdings minus its liabilities. So far, rising markets have covered the payouts. JEPQ started its first full month near $49 and now trades around $61. QQQI started near $49 and sits around $56. The risk shows up in a long downturn. The calls cap the recovery while distributions keep flowing out, and that can wear NAV down.
Matching the Fund to the Account
QQQI suits investors who hold for the long term in taxable accounts and value deferral, as long as they track their shrinking cost basis. JEPQ suits IRA holders and anyone who prefers a larger, actively managed fund, where the tax label of each payment hardly matters. In either case, account type and holding period matter more than the higher distribution rate.
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