Etsy seller taxes explained (2026)
What Etsy sellers owe, which forms you'll get, and the costs you can deduct.
Updated September 28, 2026 · Not tax advice
If you sell on Etsy regularly and aim to make a profit, the IRS treats your shop as a business. You report it on Schedule C and pay two federal taxes on the profit:
- Self-employment tax: 15.3% of 92.35% of your profit, once profit reaches $400.
- Income tax: at your normal bracket, after the standard deduction and the 20% QBI deduction most sellers qualify for.
Which form you’ll get
Etsy sends a Form 1099-K if your sales pass the federal threshold of more than $20,000 and more than 200 transactions in the year. Some states require one at lower amounts.
The 1099-K shows gross sales. It doesn’t subtract fees, refunds or shipping, so your taxable profit is usually much lower. And if you don’t get a form, your profit is still taxable.
What you can deduct
Etsy fees: listing fees, transaction fees, payment processing, Etsy Ads, Offsite Ads and shipping labels bought through Etsy. Download yearly totals from your Etsy payment account reports.
Cost of goods sold: materials and supplies that went into the items you sold, and inventory you bought to resell. Items you haven’t sold yet stay in inventory until they sell.
Other costs:
- packaging and shipping supplies,
- tools and equipment,
- product photography gear,
- software and subscriptions,
- a home office, if you use a space regularly and only for the shop,
- business miles driving to the post office or to buy supplies.
Hobby or business?
The IRS looks at whether you run the shop like a business: keeping records, trying to make a profit, and putting in regular time. If it’s a hobby, the income is still taxable, but you can’t deduct the expenses. For most regular sellers, business treatment is better.
Sales tax
In most states, Etsy collects and sends sales tax on your behalf as a “marketplace facilitator”. That’s separate from income tax.
Pay during the year
If you’ll owe $1,000 or more, make quarterly estimated payments. The quarterly calculator works out the amounts, and the Etsy tax calculator handles fees and cost of goods.