Is the JEPI distribution return of capital

For the fiscal years ended June 30, 2025 and June 30, 2026, the JPMorgan Equity Premium Income ETF (JEPI) reported every dollar it paid out as ordinary income, and none as return of capital. The fund's annual report, filed with the SEC on September 8, 2026, shows no capital gain distributions in either year either. About 16 cents of each dollar paid in the latest fiscal year was a qualified dividend. The rest was taxed at ordinary rates.

QYLD and XYLD, two funds with similar distribution rates, sent notices in 2026 estimating that more than 90% of their payouts were return of capital. The difference comes from how each fund earns its money and from which document a holder reads.

How JEPI earns the distribution

JEPI owns large U.S. stocks and collects their dividends. A second, larger stream comes from equity-linked notes, or ELNs. An ELN is a short-dated debt security issued by a bank. Its payoff is tied to an index, here the S&P 500, and the fund gives up part of the index's upside in exchange for a coupon. The economic effect is close to selling call options on the index. The legal form is a note that pays interest.

The legal form sets the tax treatment. In its financial statements, JEPI books ELN coupons as interest income. For the year ended June 30, 2026, the fund recorded $2.98 billion of interest income from non-affiliates, the line where it records ELN coupons, and $600 million of dividend income. Interest was 83% of total investment income. JEPQ, the Nasdaq-100 fund, relied on interest even more heavily: $3.61 billion of interest against $196 million of dividends, or 95% interest.

Interest is ordinary income and is never a qualified dividend. Losses the fund realizes on its notes and stocks do not cancel that income for tax purposes. The fund carries them forward against future gains. JEPI's report shows $7.5 billion of such carryforwards at June 30, 2026, and the fund still reported its whole payout as ordinary income. Only the dividend slice, about 16% at JEPI and 5% at JEPQ in fiscal 2026, qualified for the lower rate.

Which document classifies the payout

Section 19(a) notice. The Investment Company Act requires a fund to send a written statement whenever it pays a distribution from any source other than net investment income. The notice splits the payment into net investment income, realized gains and return of capital, and every notice warns that the figures are estimates, not for tax reporting. JEPI's payouts came from net investment income, so the fund had no occasion to send one.

Form 1099-DIV. The broker sends this each February for the calendar year. Box 1a holds total ordinary dividends, box 1b the qualified part, box 2a capital gain distributions, and box 3 nondividend distributions, the IRS term for return of capital.

Form 8937. A fund files this and posts it on its website when a distribution reduces cost basis. It covers the fund's taxable year, not the calendar year. JEPI's year ends June 30. QYLD's and XYLD's end October 31.

The final figure for a fiscal year is the tax-character table in the fund's annual report on Form N-CSR, filed with the SEC. The table below comes from the latest reports. Short-term gains count as ordinary income.

Fund	Fiscal year ended	Ordinary income	Long-term gain	Return of capital	Total paid
JEPI	June 30, 2026	100.0%	0.0%	0.0%	$3.41 billion
JEPQ	June 30, 2026	100.0%	0.0%	0.0%	$3.51 billion
QYLD	Oct. 31, 2025	76.1%	11.6%	12.4%	$1.07 billion
XYLD	Oct. 31, 2025	87.4%	10.1%	2.5%	$385 million

In the prior fiscal year, all four funds reported 100% ordinary income and no return of capital.

Why the notice and the tax table disagree

QYLD and XYLD own their stocks directly and write index call options. In fund accounting, option premium is not investment income. It is a realized gain or loss when the option expires or is closed. A 19(a) notice measures the payout against net investment income, which for these funds is only stock dividends less expenses. The notices therefore show most of the payout as something other than income throughout the year.

Fund	Paid per share, 19(a) notice	Return of capital, estimate	Paid per share, fiscal year	Return of capital, final
QYLD	$1.36	98.1%	$2.21	12.4%
XYLD	$2.90	92.4%	$5.11	2.5%

The notice is a book-basis estimate made mid-year. The tax character is set after the year closes, when the fund nets realized gains against losses and applies the tax rules for the index options it writes. The same pattern is repeating in the current fiscal year: QYLD's notice of September 24, 2026 estimated 99.3% return of capital on $1.96 per share paid so far this fiscal year, and XYLD's estimated 94.4% on $3.93. Neither is a tax figure until the 1099-DIV arrives in early 2027.

What return of capital does to a holder

Return of capital is not taxed when received. It reduces the holder's cost basis by the same amount. When the shares are sold, the lower basis means a larger capital gain or a smaller loss. If cumulative return of capital exceeds the basis, the excess is taxed as a capital gain in the year received. The rules are in IRS Publication 550 under nondividend distributions.

A worked example with QYLD's fiscal 2025 figures

Suppose a holder bought 100 QYLD shares at $17.96, the fund's net asset value at the start of its fiscal year on November 1, 2024. The annual report shows the fund paid $2.21 per share that year: $1.60 from net investment income, $0.34 from capital gains and $0.27 as return of capital.

• Cost basis at purchase: 100 shares at $17.96, or $1,796.
• Return of capital received: $27, not taxed in 2025.
• Cost basis after the year: $1,796 less $27, or $1,769.
• Taxable that year: $160 of ordinary dividends and $34 of capital gain distributions.

Net asset value ended the year at $17.43, down $0.53, and total return with distributions reinvested was 10.25%. The tax on the $27 was deferred, not forgiven, and the cash came out of a share price that fell over the year.

JEPI's case is simpler. For fiscal 2026 the fund paid $4.58 per share, all ordinary income. A 100-share holder reported $458 of dividends, about $74 of it qualified at the fund's 16% ratio. Cost basis did not move.

Constructive and destructive return of capital

The tax label says nothing about whether the fund made or lost money. The test is net asset value and total return over the same period.

Fiscal year	Paid per share	Of which return of capital	NAV, start	NAV, end	Total return
2022	$2.59	$1.85	$22.82	$16.15	-19.18%
2023	$2.04	$2.04	$16.15	$16.60	15.91%
2025	$2.21	$0.27	$17.96	$17.43	10.25%

In fiscal 2023, every cent QYLD paid was return of capital for tax purposes, yet net asset value rose and the fund returned 15.91%. Losses realized earlier sheltered the year's gains from tax. Holders received cash, deferred the tax on it, and still owned shares worth more than a year before. This is what is called constructive return of capital.

In fiscal 2022, the fund paid $1.85 of return of capital while net asset value fell $6.67 and total return was -19.18%. The payout came out of a shrinking pool of assets. This is destructive return of capital, the case the label exists to warn about.

Return of capital with a rising net asset value is a tax deferral. Return of capital with a falling net asset value is the holder's own money coming back.

JEPI beside JEPQ, QYLD and XYLD

	JEPI	JEPQ	QYLD	XYLD
Paid per share	$4.58	$6.12	$2.21	$5.11
Paid as a share of starting NAV	8.06%	11.25%	12.31%	12.50%
NAV total return, same year	7.77%	25.75%	10.25%	10.72%
Return of capital, final	0.0%	0.0%	12.4%	2.5%
Qualified share of ordinary income	16.2%	5.0%	Not stated	Not stated
Expense ratio	0.35%	0.35%	0.60%	0.60%
Net assets at year end	$44.8 billion	$40.8 billion	$8.1 billion	$3.1 billion
Fiscal year ended	June 30, 2026	June 30, 2026	Oct. 31, 2025	Oct. 31, 2025
Option exposure	Through ELNs	Through ELNs	Index calls, written	Index calls, written

The two JPMorgan funds convert option premium into interest, so their payouts are taxed as ordinary income almost in full and return of capital has not appeared. The two Global X funds write options directly, so their payouts move through the capital gain accounts, and the share labeled return of capital swings from zero in one year to 100% in another.

As of October 21, 2026, Global X reported a distribution rate of 11.70% for QYLD and 8.91% for XYLD, with 30-day SEC yields of 0.00% and 0.48%. The SEC yield counts only net investment income, so it is near zero for a fund whose payout comes from option premium. The fiscal-year total returns, 10.25% and 10.72%, are the figures to compare with those distribution rates.

Common mistakes

• Reading a 19(a) notice as a tax figure. It is an estimate and says so. The 1099-DIV and the annual report's tax table are the final figures.
• Treating return of capital as free money. The tax is deferred, not forgiven, and comes due as a larger gain at sale.
• Assuming a fund's tax character repeats. QYLD went from 0% return of capital in fiscal 2024 to 12.4% in fiscal 2025, and its fiscal 2026 notices estimate 99%.

How YieldDesk shows this

The CC ETFs screen lists each fund's reported tax character beside its payout and net asset value history, so the two figures in the test above appear on one row.

Sources

• J.P. Morgan Exchange-Traded Fund Trust, Form N-CSR for the year ended June 30, 2026, filed with the SEC September 8, 2026.
• Global X Funds, Form N-CSR for the year ended October 31, 2025, filed with the SEC January 9, 2026.
• Global X Section 19(a) notices for QYLD and XYLD dated July 21, 2025 and September 24, 2026; Global X fund pages as of October 21, 2026.
• IRS Publication 550 and the instructions for Forms 1099-DIV and 8937.