Racism is a significant psychosocial stressor that is hypothesized to have negative psychological and physical health consequences. The Reserve Capacity Model (Gallo & Matthews, 2003) suggests that low socioeconomic status may influence health through its effects on negative affect. We extend this model to study the effects of racism, examining the association of lifetime perceived racism to trait and daily negative affect. A multiethnic sample of 362 American-born Black and Latino adults completed the Perceived Ethnic Discrimination Questionnaire-Community Version (PEDQ-CV). Trait negative affect was assessed with the Positive and Negative Affect Schedule (PANAS), and state negative affect was measured using ecological momentary assessments (EMA), in the form of an electronic diary. Analyses revealed a significant relationship of lifetime perceived racism to both daily negative affect and trait negative affect, even when controlling for trait hostility and socioeconomic status. The relationship of perceived racism to negative affect was moderated by education, such that the relationships were strongest for those with less than a high school education. The findings support aspects of the Reserve Capacity Model and identify pathways through which perceived racism may affect health status.