How to report income to the IRS as a Etsy seller
It’s easy to start an online business these days, but that doesn’t mean you aren’t a “real” business in the eyes of the Internal Revenue Service (IRS). 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. The IRS changed the requirements for Form 1099-K beginning in 2024.
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 explainedSelf-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 Security2.9% 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). If you are also an employee, you may want to increase your tax withholding using Form W-4. You must report all sales, even if you do not receive a 1099-K. You must include all gross sales, whether they are from Etsy or other online marketplaces. 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
Expense category
Examples
Etsy fees
Listing fees, transaction fees, payment processing fees
Supplies & materials
Craft supplies, packaging materials
Shipping costs
Postage, shipping labels, mailing supplies
| Advertising & marketing | Promoted listings, website hosting, business cards |
|---|---|
| Home office deduction | If you use a dedicated workspace for your Etsy business |
| Equipment | Cameras, computers, software for business use |
| Utilities & internet | If partially used for Etsy business purposes |
| Vehicle expenses | Mileage, gas, and maintenance for business-related travel |
| 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(r) 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! If I didn’t get a 1099-K, do I still have to report Etsy income?
- Yes! If you are actively working to grow your Esty shop and your Etsy sales produce income regularly, then it is likely that your Etsy shop is a business. Hobby income is still taxable, but hobby-related expenses are not deductible like business expenses. 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. Even if you’ve never made a profit, if your business is run in a professional manner, you could still be considered to be a business. To prove that you are a business, you need to demonstrate your expertise, have a plan, make a profit, and keep separate accounts for business. You should also maintain good records. Our Income Tax Calculator and Self-employment Tax Calculator can also help! 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. Etsy is required by many states to collect and remit your sales tax. If you sell online or in person, you may have to collect and remit sales tax. 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. Stay informed about tax laws and Form 1099-K to remain compliant. TaxAct can assist you in reporting your Etsy income. For more information, please see our Guide to Forms 1099-K. It explains how to file 1099-Ks using TaxAct.
