Etsy seller taxes

Many Etsy shops start as a hobby and become a business. The tax rules follow that change. This guide explains when Etsy income is a business, how to work out profit on handmade goods, and what Etsy handles for you.

By Awais Jameel, Chartered Accountant. Reviewed by Muhammad Bilal, Chartered Accountant. Checked against official sources on . 2 minute read.

Short answer

Etsy seller taxes are on profit: sales minus the cost of materials, Etsy fees, shipping and other expenses. Business sellers report it on Schedule C and pay self-employment tax on profit of $400 or more. Etsy collects and remits sales tax on orders to states with a sales tax, and issues Form 1099-K when federal or state thresholds are met.

At a glance

Taxed on
Profit, not sales
Business sellers
Schedule C and self-employment tax
Hobby sellers
Income taxable, expenses not deductible
Etsy fees
Deductible for business sellers
Sales tax on Etsy orders
Collected and remitted by Etsy
Form 1099-K
Over $20,000 and 200 transactions, or lower state thresholds
Etsy seller taxesTaxed on: Profit, not sales; Business sellers: Schedule C and self-employment tax; Hobby sellers: Income taxable, expenses not deductible; Etsy fees: Deductible for business sellers; Sales tax on Etsy orders: Collected and remitted by Etsy; Form 1099-K: Over $20,000 and 200 transactions, or lower state thresholds.KEY FACTS AT A GLANCEEtsy seller taxesTaxed onProfit, not salesBusiness sellersSchedule C andself-employment taxHobby sellersIncome taxable, expensesnot deductibleEtsy feesDeductible for businesssellersSales tax on Etsy ordersCollected and remitted byEtsyForm 1099-KOver $20,000 and 200transactions, or lowerstate thresholdsChecked against official sourcesTax BakersEtsy seller taxesTaxed on: Profit, not sales; Business sellers: Schedule C and self-employment tax; Hobby sellers: Income taxable, expenses not deductible; Etsy fees: Deductible for business sellers; Sales tax on Etsy orders: Collected and remitted by Etsy; Form 1099-K: Over $20,000 and 200 transactions, or lower state thresholds.KEY FACTS AT A GLANCEEtsy seller taxesTaxed onProfit, not salesBusiness sellersSchedule C and self-employment taxHobby sellersIncome taxable, expenses not deductibleEtsy feesDeductible for business sellersSales tax on Etsy ordersCollected and remitted by EtsyForm 1099-KOver $20,000 and 200 transactions, or lowerstate thresholdsChecked against official sourcesTax Bakers
Key facts at a glance, as set out in this guide.

Is your Etsy shop a hobby or a business?

It is a business if you run it to make a profit, in a businesslike way: keeping records, pricing to earn money, and putting in regular time. That matters because business expenses are deductible, while hobby expenses are not, even though hobby income is still taxable. Most shops selling regularly are businesses.

How do you work out profit on handmade goods?

ItemTreatment
Sales, including shipping chargedGross receipts
RefundsReturns and allowances
Materials used in items soldCost of goods sold. Materials for unsold stock stay in inventory
Listing, transaction and payment processing feesBusiness expenses
Etsy Ads and offsite ads feesAdvertising
Shipping labels and packagingBusiness expenses
Tools and equipmentDeductible, often in full in the year bought

Your own time is not a deductible cost. See deductible business expenses.

When does Etsy send a 1099-K?

When payments to you are over $20,000 and there are over 200 transactions in the year, or at lower amounts where your state requires it. The form shows gross sales, before fees and refunds. See Form 1099-K.

Who handles sales tax?

Etsy collects and remits sales tax on orders shipped to states with a sales tax, as a marketplace facilitator. If you also sell at craft fairs or on your own website, you are responsible for sales tax on those sales, including a permit in your home state. See how US sales tax works.

Etsy print on demand sellers should also see print on demand taxes.

Do Etsy sellers pay self-employment tax?

Business sellers with net profit of $400 or more do. See self-employment tax explained.

What records should you keep?

  • Etsy monthly statements and the annual sales report.
  • Receipts for materials, with a note of which products they went into.
  • A simple count of stock and materials at year end.

See bookkeeping basics.

Running an Etsy shop?

We set up simple bookkeeping for materials and inventory, reconcile your Etsy statements, and prepare your Schedule C.

Book a call Chat on WhatsApp

Questions people ask

Do I pay taxes on Etsy sales?

Yes, on profit, whether or not you receive a 1099-K. Business sellers also pay self-employment tax.

Does Etsy collect sales tax?

Yes, on orders shipped to states with a sales tax, as a marketplace facilitator.

Can I deduct materials for my Etsy products?

Yes, as cost of goods sold when the items are sold. Materials in unsold stock are deducted when those items sell.

Is my Etsy shop a hobby or a business?

A business if you run it to make a profit in a businesslike way. Hobby income is taxable but hobby expenses are not deductible.

Sources

Every fee, date and rule on this page was taken from these official and primary sources.

  1. IRS: Understanding your Form 1099-K
  2. IRS: About Schedule C (Form 1040)
  3. Streamlined Sales Tax Governing Board: Marketplace facilitator state guidance
  4. Internal Revenue Code section 183: activities not engaged in for profit

Rules and fees change. If you are reading this long after September 30, 2026, confirm the figures with the source before you rely on them.

Federal tax formsForm 1099-K: what it shows and how to report itOnline sellerseBay seller taxes: income tax, 1099-K and sales taxBusiness tax by entity typeBusiness expenses you can deduct: a working list

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This guide is general information. It is not tax or legal advice for your situation.