GPIQ vs QQQI Tax Efficiency: 60/40 Split, ROC, and NIIT

For a taxable brokerage account, QQQI is the more tax-efficient of the two funds, and the reason comes down to what each fund writes options on: QQQI’s Nasdaq-100 index options qualify as Section 1256 contracts and get the favorable 60/40 tax split, while GPIQ’s option income generally does not. That is the core of the GPIQ vs QQQI tax efficiency comparison. GPIQ has its own tax angle — a very high return-of-capital component that defers tax rather than lowering the rate — but the two advantages are not equivalent, and they behave very differently depending on the account you hold the fund in.

How QQQI’s 60/40 Split Works

QQQI generates income by selling call options on the Nasdaq-100 index (NDX). NEOS selects those contracts specifically because options on a broad-based stock index are “nonequity options” under the tax code, which places them in the Section 1256 category.¹ NEOS states directly on the fund’s page that QQQI uses “NDX Index options classified as section 1256 contracts, which are subject to lower 60/40 tax rates.”²

The 60/40 rule treats 60% of any gain on a Section 1256 contract as long-term capital gain and 40% as short-term, regardless of how long the position was actually held.³ That matters because most option writing generates short-term gains under ordinary rules; Section 1256 overrides that entirely, even for a contract held two days.¹

For a top-bracket investor, the arithmetic is meaningful. The top ordinary income rate for 2026 is 37% (single filers above $640,600),⁴ and the top long-term capital gains rate is 20%. Blended 60/40, the effective federal rate on option gains lands near 25.8% instead of a full 37%. On a fund distributing over 14% annually, that gap compounds quickly.

How GPIQ’s Option Income Is Taxed

GPIQ takes a different approach. Goldman Sachs describes the fund as providing “equity exposure to the Nasdaq-100 Index” while “dynamically selling call options.”⁵ Goldman Sachs does not market GPIQ as using Section 1256-qualifying index options, and the fund’s materials make no mention of the 60/40 split. That is a notable silence given how prominently NEOS features the same treatment for QQQI.

When a fund writes call options on individual stocks rather than a broad-based index, those are equity options, and gains are taxed at ordinary income rates for short holding periods. Even when a fund writes contracts referencing the index itself, whether Section 1256 applies depends on the specific contract type and where it trades. The absence of any Section 1256 language from Goldman Sachs is consistent with GPIQ’s option income not receiving the favorable split.

GPIQ’s tax story is not purely negative, though. As of March 2026, Goldman Sachs estimated that 88.3% of GPIQ’s fiscal year-to-date distributions were classified as return of capital.⁵ That component is not taxed when you receive it. The percentage can shift substantially from year to year based on fund performance and how derivative positions are accounted for.

What Return of Capital Actually Does

A return-of-capital distribution is money the fund pays you that the IRS does not treat as earnings or profit. Instead of triggering tax in the year received, it reduces your cost basis in the shares.⁶

A quick example. You buy shares at $25 and receive $1.50 in ROC distributions over the year. Your adjusted basis drops to $23.50. You owe nothing on the $1.50 now, but when you sell, gain is measured from $23.50 rather than $25. Hold the shares longer than a year before selling and that deferred gain qualifies for long-term capital gains rates.⁷

There is one important limit. If cumulative ROC distributions push your basis to zero, any further distributions are taxed as capital gains in the year received, whether or not you sell.⁶ At GPIQ’s 88.3% ROC rate, a long-term holder can reach that zero-basis point faster than expected.

Add the 3.8% Net Investment Income Tax

The Net Investment Income Tax layers 3.8% on top of the regular rate for higher-income investors. It applies to the lesser of net investment income or the amount by which modified adjusted gross income exceeds $200,000 (single) or $250,000 (married filing jointly), and those thresholds are not indexed for inflation.⁸

With the surtax included, the top long-term capital gains rate rises from 20% to 23.8%, ordinary income moves from 37% to 40.8%, and QQQI’s blended 60/40 rate climbs from roughly 25.8% to about 29.6%. That is still substantially below the 40.8% that pure ordinary income would face, so each distribution dollar QQQI routes through Section 1256 saves roughly 11 cents versus the ordinary-rate alternative.

QQQI’s Year-End Mark-to-Market Quirk

Section 1256 carries a timing rule worth knowing. Any contract still open on December 31 is treated as if sold at fair market value that day, and the resulting gain or loss is recognized for that tax year.¹ QQQI cannot roll unrealized option gains into the next year. Unrealized losses are also picked up, which can offset other gains. When positions later close, the code adjusts for amounts already recognized, so nothing gets taxed twice. The result can be uneven year-to-year distribution characterization even when the strategy itself is steady.

Which Account Should Hold Which Fund

Account placement is where investors most often lose the tax advantage. Section 1256 treatment vanishes inside a traditional IRA or 401(k), because withdrawals from those accounts are taxed as ordinary income regardless of how the gains were generated inside the wrapper. Holding QQQI in a tax-deferred account converts favorable capital gains treatment into ordinary income on the way out.

QQQI’s design assumes a taxable brokerage account. That is where the 60/40 split actually saves money. GPIQ’s option income would mostly be taxed at ordinary rates in a taxable account (setting aside the ROC portion), so if the choice is between the two funds inside a tax-advantaged account where everything eventually comes out as ordinary income, the tax differential is neutralized and GPIQ’s lower expense ratio of 0.35% (versus QQQI’s 0.68%) becomes the more relevant factor.⁵²

The rough rule for investors holding both: QQQI in taxable, GPIQ in an IRA. GPIQ’s very high ROC percentage complicates that a bit, since return of capital is already tax-deferred by its nature, so the benefit of sheltering it further is smaller than it would be for a fund throwing off pure ordinary income.

Swapping Between GPIQ and QQQI for a Loss

Because both funds track the Nasdaq-100, a common question is whether selling one at a loss and buying the other triggers the wash sale rule. Section 1091 disallows a loss when a “substantially identical” security is bought within 30 days before or after the sale. The IRS has not drawn a bright line for ETFs, but most tax professionals treat two ETFs from different providers as distinct because they have different managers, expense ratios, and portfolio construction.

GPIQ and QQQI make a stronger differentiation case than two plain index funds tracking the same benchmark. They use fundamentally different option strategies, carry different expense ratios, and produce different distribution profiles. No IRS ruling specifically blesses the swap, so a meaningful harvest is worth reviewing with a tax advisor for your specific facts.

The Tax Forms You’ll See

Your brokerage issues a Form 1099-DIV for each fund. Box 1a reports total ordinary dividends and Box 3 reports nondividend distributions, which is where return of capital appears.⁹ For QQQI, gains from Section 1256 contracts flow through Form 6781, where the 60/40 split is computed: line 8 for the 40% short-term portion, line 9 for the 60% long-term portion, each carrying to the appropriate section of Schedule D.³

Both fund providers also file Form 8937 whenever a distribution affects shareholder basis, which happens for every ROC distribution.¹⁰ Final characterization on the 1099-DIV often differs from the estimates funds publish during the year, so wait for the final forms before filing.

1
Office of the Law Revision Counsel. 26 USC 1256 – Section 1256 Contracts Marked to Market
2
NEOS Investments. QQQI – Nasdaq-100 High Income ETF
3
Internal Revenue Service. Form 6781 – Gains and Losses From Section 1256 Contracts and Straddles
4
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
5
Goldman Sachs Asset Management. Goldman Sachs Nasdaq-100 Premium Income ETF – GPIQ
6
Internal Revenue Service. Mutual Funds (Costs, Distributions, Etc.)
7
Internal Revenue Service. Publication 551 – Basis of Assets
8
Internal Revenue Service. Net Investment Income Tax
9
Internal Revenue Service. Instructions for Form 1099-DIV
10
Internal Revenue Service. Instructions for Form 8937 – Report of Organizational Actions Affecting Basis of Securities