Vegetation changes, such as shrub encroachment and wetland expansion, have been observed in many Arctic tundra regions. These changes feed back to permafrost and climate. Permafrost can be protected by soil shading through vegetation as it reduces the amount of solar energy available for thawing. Regional climate can be affected by a reduction in surface albedo as more energy is available for atmospheric and soil heating. Here, we compared the shortwave radiation budget of two common Arctic tundra vegetation types dominated by dwarf shrubs (Betula nana) and wet sedges (Eriophorum angustifolium) in North-East Siberia. We measured time series of the shortwave and longwave radiation budget above the canopy and transmitted radiation below the canopy. Additionally, we quantified soil temperature and heat flux as well as active layer thickness. The mean growing season albedo of dwarf shrubs was 0.15 ± 0.01, for sedges it was higher (0.17 ± 0.02). Dwarf shrub transmittance was 0.36 ± 0.07 on average, and sedge transmittance was 0.28 ± 0.08. The standing dead leaves contributed strongly to the soil shading of wet sedges. Despite a lower albedo and less soil shading, the soil below dwarf shrubs conducted less heat resulting in a 17 cm shallower active layer as compared to sedges. This result was supported by additional, spatially distributed measurements of both vegetation types. Clouds were a major influencing factor for albedo and transmittance, particularly in sedge vegetation. Cloud cover reduced the albedo by 0.01 in dwarf shrubs and by 0.03 in sedges, while transmittance was increased by 0.08 and 0.10 in dwarf shrubs and sedges, respectively. Our results suggest that the observed deeper active layer below wet sedges is not primarily a result of the summer canopy radiation budget. Soil properties, such as soil albedo, moisture, and thermal conductivity, may be more influential, at least in our comparison between dwarf shrub vegetation on relatively dry patches and sedge vegetation with higher soil moisture.