Selling on Etsy® may be a fast and easy way to get into business for yourself. But make no mistake — getting started in online sales may be quick and easy these days, but that doesn’t mean you’re not a “real” business in the eyes of the Internal Revenue Service (IRS).
Fortunately, complying with IRS rules for your new business isn’t too complicated once you understand the basics. Here’s what you need to know as an Etsy seller.
At a glance:
Etsy tracks and reports your sales through Form 1099-K. You’ll receive this form if you have over $5,000 in Etsy Payments in 2024 or $2,500 in 2025.
You may be able to deduct business expenses such as supplies and shipping costs.
If you’re selling on Etsy, be sure to set aside earnings to cover both income tax and self-employment tax.
Understanding Form 1099-K as an Etsy seller
After the end of the year, Etsy sends out IRS Form 1099-K, Payment Card and Third Party Network Transactions, to both you and the IRS. Form 1099-K reports your total Etsy sales processed through Etsy Payments and other payment processors, like PayPal.
Will I get Form 1099-K?
Before 2024, the threshold to receive a 1099-K was much higher than it is now — you had to have received at least 200 payments totaling $20,000 or more in sales through Etsy Payments during the year. However, the IRS changed these requirements beginning in 2024.
You’ll receive Form 1099-K from Etsy if:
For 2024: You have at least $5,000 in Etsy Payments.
For 2025: You have at least $2,500 in Etsy Payments.
For 2026: You have at least $600 in Etsy Payments.
Make sure you provide Etsy with valid taxpayer information such as your Social Security number (SSN), individual taxpayer identification number (ITIN), or employer identification number (EIN). If Etsy does not have this information on file and you exceed $500 in sales, Etsy will suspend your shop until you provide your taxpayer details.
Taxes you pay as an Etsy seller
If your total income from self-employment is $400 or more, you must pay self-employment tax in addition to income tax when tax season rolls around. However, you only pay self-employment tax on your income after expenses.
Self-employment tax explained
Self-employment tax covers your contributions to Social Security and Medicare. The tax rate is 15.3% of your net profit, which includes:
12.4% for Social Security
2.9% for Medicare
Estimated tax payments
You may also be required to make quarterly estimated tax payments to the IRS to avoid underpayment penalties (if you expect to owe at least $1,000 in taxes during the year). Keeping track of your business income and setting aside funds throughout the tax year can help you stay prepared.
Or, if you also have wages as an employee, consider increasing your tax withholding from your pay using Form W-4. By planning your taxes now, you can avoid a surprise tax bill when you file your return.
You must also report other sales from outside Etsy.
Even if you don’t receive a Form 1099-K, your Etsy income is still taxable income. You must report all gross sales on your tax return, including those from other online marketplace platforms or in-person events like craft fairs.
This is why keeping good records of all your sales on and off Etsy is essential. You must include revenue from all sales when reporting your total business income, regardless of whether you receive a 1099-K form reporting it.
Potential tax deductions for Etsy sellers
Reducing your taxable income with deductions can help lower your tax rate and the amount you owe. Here are some examples of potential business tax deductions for Etsy sellers:
Deductible Etsy business expenses
Keeping detailed records of your business expenses will help when you file taxes and maximize your tax deductions. Consider using a separate bank account for your Etsy store to separate personal and business finances.
Check out our list of small business tax deductions for more ways to save on your taxes as a business owner selling on Etsy.
How to use Schedule C as an Etsy seller
Etsy sellers typically operate as sole proprietors, which means they must file Schedule C (Profit or Loss from Business) with their income tax return.
Schedule C is where you report income from your Etsy business and deduct business expenses to determine your net profit or net income as a sole proprietorship. Your net profit is what you’ll pay self-employment tax and income tax on.
If your Etsy store operates as an LLC, you may still file Schedule C unless you elect to be taxed as an S corporation or C corporation.
How to fill out Schedule C:
Report your gross sales: Enter the total amount of income from Etsy Payments and other sources.
Deduct business expenses: List eligible business tax deductions, such as Etsy fees, shipping costs, supplies, and advertising expenses.
Calculate net profit: Subtract your business expenses from your total sales income. This is your taxable business income.
Pay self-employment taxes: If your net profit is $400 or more, you must pay self-employment tax to cover Social Security and Medicare.
TaxAct® Self-Employed makes it easy to complete all these steps — our helpful tax preparation software will walk you through the tax filing process and help you fill out Schedule C.
FAQs about Etsy taxes
Do I have to report Etsy income if I didn’t get a 1099-K?
Yes! All Etsy sales income must be reported, even if you didn’t receive a Form 1099-K. You are responsible for tracking and reporting all business income to the IRS.
How do I know if my Etsy shop is a business or just a hobby?
In short, the IRS considers your Etsy store a business if you operate it with the intent to make a profit. If your Etsy sales generate income regularly and you actively work to grow your Esty store, it is likely a business. However, it may be considered a hobby if you aren’t a full-time seller and just sell occasionally without a profit motive. Keep in mind that hobby income is still taxable income, but hobby-related expenses are not deductible like business expenses.
If you can show that you operate your business seriously and it’s not just a hobby, you can generally use any loss from your business to offset other income you have, such as wages.
Additionally, if you report a profit to the IRS at least three out of five years, the IRS assumes you are a business. However, even if you have never shown a profit, you may still be considered a business if you operate in a business-like manner.
There are several ways to prove you have a business as an Etsy seller and aren’t a hobby seller. To do this, you can demonstrate your expertise, show the time and effort you expend, have a business plan, show a profit at least occasionally, keep separate bank accounts for business purposes, and maintain good records.
How do I know how much to set aside for taxes?
Since Etsy sellers are considered self-employed, you must pay self-employment tax in addition to income tax. A good rule of thumb is to save 25-30% of your net income for quarterly taxes and your income tax return. Our Income Tax Calculator and Self-employment Tax Calculator can also help!
What taxes do Etsy sellers have to pay?
Federal income tax (based on net profit)
State income tax (if applicable)
Self-employment tax (Social Security & Medicare)
Sales tax (if required by your state)
Do I have to collect sales tax on my Etsy store?
It depends on your location. Many states require Etsy to collect and remit sales tax on your behalf. However, if you sell in person or through another online seller platform, you may be responsible for collecting and remitting sales tax yourself. Always research the rules in the states you often sell in, and be sure to collect and remit tax as required.
What happens if I don’t report my Etsy income?
Failing to report income can lead to penalties, interest, or even an audit from the IRS. It’s always best to properly file taxes and keep detailed records of your gross income and business expenses.
TaxAct is here to help.
Understanding your tax obligations as an Etsy seller is crucial. To remain compliant with the IRS, be sure to stay informed about changing tax laws, especially those related to Form 1099-K.
Ready to file? TaxAct can help you report your Etsy income. To learn more, check out our Guide to Form 1099-K, which details how to file a 1099-K using TaxAct.
This article is for informational purposes only and not legal or financial advice.
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