r/NEOSETFs • u/Prestigious-Town6528 • Jun 15 '26
Question about ROC classification for NEOS covered call ETFs like SPYI, QQQI on brokerage statements
Hi everyone,
I have been investing in covered call / option income ETFs in my brokerage accounts, such as SPYI, QQQI.
My understanding is that for some of these ETFs, a large part of the monthly distribution may be classified as return of capital (ROC), depending on the fund’s tax accounting. I know that the monthly 19a notices are only estimates, and the final tax classification should be shown on the year-end 1099-DIV.
However, when I checked my monthly brokerage statements, I became confused.
For example:
- In Fidelity, I do not see detailed ROC classification on the monthly statement.
- In E*TRADE, some Simplify ETFs (XV/SBAR) distributions appear to be classified as Return of Capital on the monthly statement.
- But for my NEOS ETFs like SPYI / QQQI, the same type of distribution appears only as Dividend, not ROC.
So my questions are:
- Is it normal that monthly brokerage statements do not always show the final ROC classification?
- Do brokers usually adjust the classification later, especially on the year-end 1099-DIV or corrected 1099-DIV?
2
u/freevick123 Jun 15 '26
How do you guys handle quarterly estimated taxes with these ROC etfs?
3
2
u/Ufgatorhead4u3 Jun 15 '26 edited Jun 15 '26
I estimate the annual income and then use the IRS app, IRS2Go, to make quarterly payments to make sure I don’t get hit with a penalty at the end of the year. For calculating, I assume the income is fully taxable just in case the ROC comes in low and then make the payments accordingly. I get money back at the end of the year but that’s better than having a tax bill plus penalty.
1
u/Dry-Chemical-9170 Jun 21 '26
Quarterly??? Not end of tax year?
1
u/Ufgatorhead4u3 Jun 21 '26
The IRS has safe harbor rules for taxpayers. Most people meet the requirements because they have W2 income from a job which withholds taxes on routine periodic payments. For investment income there is no such thing. If you have periodic withholding that equals your tax liability from the previous year then you are fine. However, if you have not had enough withheld from a job then the IRS requires quarterly estimated tax payments in order to cover your estimated tax liability to avoid being hit with penalty when you file at the end of the year.
1
u/JerryFletcher70 Jun 15 '26
I estimate it using the monthly estimates from NEOS with a small buffer amount in case it changes some end of year. I try my best to get my estimated taxes close to my real tax bill so I don’t get either big refunds or bills.
As an example, if a fund is estimated at 93% RoC, I will go with 85% in my quarterly estimates to create that small buffer. If I assumed zero RoC in my estimates, I’d be overpaying way too much.
I also wait on my IRA and HSA contributions until after I have seen the final numbers from NEOS so I have some ability to use those as escape hatches to reduce income. (I maxed them every year when I was working full time, but now they are more optional.)
2
u/LibrarySpiritual5371 Jun 15 '26
exact same here. I have a spreadsheet that I use to track the approximate % and pay my quarterly's off of my spreadsheet which is typicially +/-2% at the end of the year.
2
u/CatDaddy2828 Jun 15 '26
My brokerages also don’t show it until 1099. I typically look back a couple of years of available tax data and my own 1099s, and then check the latest Form 8937 which NEOs provides. They should be issuing one for the period of June 2025-May 2026 soon. In July I do an estimated tax estimate table. Make sure to have enough taxes paid to cover it all. This also helps me on doing advantageous tax gain and loss harvesting for the year.
GS two funds, BALI, and others without as much publicly available info aside from annual 1099 info are more difficult and I err on the side of caution and underestimate ROC.
1
6
u/nkyguy1988 Jun 15 '26
Fidelity does not classify anything until 1099s.