Etsy Taxes: 1099-K, Sales Tax and Deductions for Etsy Sellers
How Etsy income is taxed, when you get an Etsy 1099-K, why sales tax is usually handled for you, the deductions sellers can claim and hobby vs. business rules.
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Key takeaways
- Etsy sends a 1099-K if your sales exceed $20,000 and 200 transactions (lower in some states). All profit is taxable either way.
- Etsy collects and remits sales tax for orders in the US states that charge it, so most sellers do not file sales tax returns for Etsy orders.
- As a business you pay income tax and 15.3% self-employment tax on your profit, after cost of goods sold, Etsy fees, shipping and other expenses.
- If your shop is a hobby, income is taxable but expenses are not deductible.
Etsy makes it easy to turn a craft into income, but the IRS sees the shop as a business once you sell to make a profit. The good news is that many costs are deductible, from materials to shipping labels. Here is how Etsy taxes work in 2026.
Please note
General information about US federal rules as of October 2026; not tax advice. Sellers outside the US follow their own country's rules.
The Etsy 1099-K
Etsy issues Form 1099-K to US sellers with more than $20,000 in gross sales and more than 200 transactions in a year. Some states require it at lower amounts: $600 in Maryland, Massachusetts, Vermont, Virginia and the District of Columbia, and $1,000 with four transactions in Illinois. You find it in your Shop Manager under the tax forms section by January 31.
The gross amount is not your profit. It can include shipping charged to buyers and amounts that were later refunded, and it does not subtract Etsy's fees. Reconcile it with Etsy's annual sales and fee reports. Sales tax that Etsy collected and paid to the state is not your income; if it is in the gross figure, back it out.
Sales tax: usually handled by Etsy
All US states with a sales tax have marketplace facilitator laws. Etsy calculates, collects and remits sales tax on orders shipped to those states. You generally do not need to register or file for those Etsy sales. If you also sell through your own website or at markets, you may have your own sales tax obligations there.
Also selling used items from home on eBay or Poshmark? Those sales follow different rules; our guide to eBay 1099-K taxes explains why personal items sold at a loss are not taxable.
Hobby or business?
The IRS looks at whether you run the shop like a business with the intention to make a profit: separate records, time and effort, expertise, changes to improve profitability and a history of profits (profit in 3 of 5 years creates a presumption of a business). A hobby's income is still taxable, but hobby expenses are not deductible, so business status is usually better.
How Etsy profit is calculated
Profit = Sales − Refunds − Cost of goods sold − Expenses
Cost of goods sold (COGS)
Materials and supplies that go into what you sell, plus packaging that ships with the product, are calculated in Part III of Schedule C. If you keep inventory, only the cost of items you actually sold is deducted this year.
Common Etsy seller deductions
| Expense | Notes |
|---|---|
| Etsy fees | Listing, transaction (6.5%), payment processing, Etsy Ads, Offsite Ads, subscriptions |
| Shipping labels and postage | Including labels bought through Etsy |
| Packaging and shipping supplies | Boxes, mailers, tape, tissue |
| Tools and equipment | Printers, sewing machines, kilns; items up to $2,500 can usually be expensed |
| Home office | $5 per square foot up to 300 sq ft, if used regularly and exclusively for the shop |
| Photography and software | Camera gear, editing and design apps |
| Mileage | Trips to the post office or supply stores: 72.5¢ / 76¢ per mile in 2026 |
| Phone and internet | Business share |
Example: a candle shop on Etsy
| Item | Amount |
|---|---|
| Gross sales (including shipping charged) | $28,000 |
| Refunds | −$600 |
| Cost of goods sold (wax, wicks, jars, scents) | −$7,800 |
| Etsy fees | −$3,100 |
| Shipping labels | −$3,400 |
| Packaging | −$700 |
| Etsy Ads | −$900 |
| Equipment | −$600 |
| Home office (150 sq ft × $5) | −$750 |
| Net profit | $10,150 |
| Self-employment tax | $1,434 |
| Extra income tax (seller has a $55,000 salary, 12% bracket, after QBI) | $906 |
| Total federal tax on the shop | $2,340 |
That is about 23% of profit, but only about 8% of sales, which shows how much the deductions matter. Above $1,000 of expected tax, the seller should raise job withholding or pay quarterly estimated taxes.
Records to keep
- Etsy's monthly statements and annual sales, fee and tax reports.
- Receipts for materials, equipment, packaging and shipping.
- An inventory count at year-end if you hold stock.
- A separate bank account for the shop.
Frequently asked questions
Do I have to pay taxes on Etsy sales?
Yes, on your profit. Business sellers pay income tax and, once net earnings reach $400, self-employment tax.
When does Etsy send a 1099-K?
When gross sales exceed $20,000 and 200 transactions in a year, or at lower thresholds required by some states.
Do I need to collect sales tax on Etsy?
Usually not for Etsy orders. Etsy collects and remits sales tax as a marketplace facilitator in US states with a sales tax.
Are Etsy fees tax deductible?
Yes. Listing, transaction, payment processing and advertising fees are deductible business expenses.
Do I need an LLC for my Etsy shop?
Not for taxes. A single-member LLC is taxed like a sole proprietorship unless it elects otherwise; it mainly offers legal separation.
