diff --git a/crates/red_knot_python_semantic/resources/mdtest/call/union.md b/crates/red_knot_python_semantic/resources/mdtest/call/union.md
index 88d6ad9c37..10055283a8 100644
--- a/crates/red_knot_python_semantic/resources/mdtest/call/union.md
+++ b/crates/red_knot_python_semantic/resources/mdtest/call/union.md
@@ -162,6 +162,31 @@ def _(flag: bool):
     reveal_type(f("string"))  # revealed: Literal["string", "'string'"]
 ```
 
+## Unions with literals and negations
+
+```py
+from typing import Literal, Union
+from knot_extensions import Not, AlwaysFalsy, static_assert, is_subtype_of, is_assignable_to
+
+static_assert(is_subtype_of(Literal["a", ""], Union[Literal["a", ""], Not[AlwaysFalsy]]))
+static_assert(is_subtype_of(Not[AlwaysFalsy], Union[Literal["", "a"], Not[AlwaysFalsy]]))
+static_assert(is_subtype_of(Literal["a", ""], Union[Not[AlwaysFalsy], Literal["a", ""]]))
+static_assert(is_subtype_of(Not[AlwaysFalsy], Union[Not[AlwaysFalsy], Literal["a", ""]]))
+
+static_assert(is_subtype_of(Literal["a", ""], Union[Literal["a", ""], Not[Literal[""]]]))
+static_assert(is_subtype_of(Not[Literal[""]], Union[Literal["a", ""], Not[Literal[""]]]))
+static_assert(is_subtype_of(Literal["a", ""], Union[Not[Literal[""]], Literal["a", ""]]))
+static_assert(is_subtype_of(Not[Literal[""]], Union[Not[Literal[""]], Literal["a", ""]]))
+
+def _(
+    x: Union[Literal["a", ""], Not[AlwaysFalsy]],
+    y: Union[Literal["a", ""], Not[Literal[""]]],
+):
+    reveal_type(x)  # revealed: Literal[""] | ~AlwaysFalsy
+    # TODO should be `object`
+    reveal_type(y)  # revealed: Literal[""] | ~Literal[""]
+```
+
 ## Cannot use an argument as both a value and a type form
 
 ```py
diff --git a/crates/red_knot_python_semantic/src/types/builder.rs b/crates/red_knot_python_semantic/src/types/builder.rs
index 41d194652e..6bfecfe2a9 100644
--- a/crates/red_knot_python_semantic/src/types/builder.rs
+++ b/crates/red_knot_python_semantic/src/types/builder.rs
@@ -44,6 +44,40 @@ use crate::types::{
 use crate::{Db, FxOrderSet};
 use smallvec::SmallVec;
 
+#[derive(Debug, Clone, Copy, PartialEq, Eq)]
+enum LiteralKind {
+    Int,
+    String,
+    Bytes,
+}
+
+impl<'db> Type<'db> {
+    /// Return `true` if this type can be a supertype of some literals of `kind` and not others.
+    fn splits_literals(self, db: &'db dyn Db, kind: LiteralKind) -> bool {
+        match (self, kind) {
+            (Type::AlwaysFalsy | Type::AlwaysTruthy, _) => true,
+            (Type::StringLiteral(_), LiteralKind::String) => true,
+            (Type::BytesLiteral(_), LiteralKind::Bytes) => true,
+            (Type::IntLiteral(_), LiteralKind::Int) => true,
+            (Type::Intersection(intersection), _) => {
+                intersection
+                    .positive(db)
+                    .iter()
+                    .any(|ty| ty.splits_literals(db, kind))
+                    || intersection
+                        .negative(db)
+                        .iter()
+                        .any(|ty| ty.splits_literals(db, kind))
+            }
+            (Type::Union(union), _) => union
+                .elements(db)
+                .iter()
+                .any(|ty| ty.splits_literals(db, kind)),
+            _ => false,
+        }
+    }
+}
+
 enum UnionElement<'db> {
     IntLiterals(FxOrderSet<i64>),
     StringLiterals(FxOrderSet<StringLiteralType<'db>>),
@@ -61,12 +95,9 @@ impl<'db> UnionElement<'db> {
     /// If this `UnionElement` is some other type, return `ReduceResult::Type` so `UnionBuilder`
     /// can perform more complex checks on it.
     fn try_reduce(&mut self, db: &'db dyn Db, other_type: Type<'db>) -> ReduceResult<'db> {
-        // `AlwaysTruthy` and `AlwaysFalsy` are the only types which can be a supertype of only
-        // _some_ literals of the same kind, so we need to walk the full set in this case.
-        let needs_filter = matches!(other_type, Type::AlwaysTruthy | Type::AlwaysFalsy);
         match self {
             UnionElement::IntLiterals(literals) => {
-                ReduceResult::KeepIf(if needs_filter {
+                ReduceResult::KeepIf(if other_type.splits_literals(db, LiteralKind::Int) {
                     literals.retain(|literal| {
                         !Type::IntLiteral(*literal).is_subtype_of(db, other_type)
                     });
@@ -77,7 +108,7 @@ impl<'db> UnionElement<'db> {
                 })
             }
             UnionElement::StringLiterals(literals) => {
-                ReduceResult::KeepIf(if needs_filter {
+                ReduceResult::KeepIf(if other_type.splits_literals(db, LiteralKind::String) {
                     literals.retain(|literal| {
                         !Type::StringLiteral(*literal).is_subtype_of(db, other_type)
                     });
@@ -88,7 +119,7 @@ impl<'db> UnionElement<'db> {
                 })
             }
             UnionElement::BytesLiterals(literals) => {
-                ReduceResult::KeepIf(if needs_filter {
+                ReduceResult::KeepIf(if other_type.splits_literals(db, LiteralKind::Bytes) {
                     literals.retain(|literal| {
                         !Type::BytesLiteral(*literal).is_subtype_of(db, other_type)
                     });