Seller Tax Guide
Etsy Taxes: What Every Seller Needs to Know
Selling on Etsy can be a hobby, a side hustle, or a full business — and which one you are decides how you're taxed. Etsy doesn't withhold taxes, and the 1099-K it may send reports gross sales, not profit. Here's how Etsy taxes work once you're selling as a business.
How Etsy taxes work
You're a self-employed seller
The marketplace doesn't withhold taxes. If you sell as a business (regularly and for profit), you owe income tax plus self-employment tax on your net profit — what's left after the cost of the goods and your selling expenses.
Self-employment tax is 15.3%
That's 12.4% Social Security + 2.9% Medicare on your net earnings — on top of regular income tax. It funds the benefits an employer would normally split with you.
Deductions lower your taxable income
Business expenses — equipment, software, supplies, and phone — reduce the net earnings you're taxed on. Tracked properly, they often save more than any other single move.
You pay as you go, quarterly
Instead of one April bill, the IRS expects estimated payments four times a year. Paying quarterly avoids an underpayment penalty.
Do you get a 1099-K — and is your Etsy income taxable?
Etsy processes buyer payments, so it issues a Form 1099-K when your sales reach the IRS reporting threshold for the year. That threshold has changed in recent years, so you might get a 1099-K for fairly modest sales — or not get one and still owe tax. A 1099-K reports gross sales before fees and refunds, so it's a starting point, not your taxable profit.
Whether you owe tax depends on what you're doing. Casually selling your own used items for less than you paid is generally not taxable (and that loss isn't deductible). But making goods to sell — as most Etsy sellers do — is a business: you report it on Schedule C, deduct your cost of materials and expenses, and owe income tax plus the 15.3% self-employment tax on the net profit. Confirm your situation with the IRS.
What Etsy sellers can deduct
Cost of goods sold (materials)
The materials and supplies that go into the items you make are deducted against your sales as COGS — keep records of what each piece costs you.
Etsy fees
Etsy's listing, transaction, payment-processing, and optional Offsite Ads fees are deductible business expenses.
Shipping & postage
Postage, shipping labels, and carrier fees you pay to get orders to buyers.
Packaging & supplies
Boxes, mailers, tissue, tape, and other materials used to pack and ship orders.
Home studio & storage
The part of your home used regularly and exclusively for making, storing, or shipping your products may qualify.
Tools & equipment
Craft tools, a dedicated printer, and equipment bought for the business (larger items may be depreciated).
Frequently asked questions
Does Etsy take out taxes for me?
No. Etsy doesn't withhold taxes. If you sell as a business, you're responsible for income tax plus the 15.3% self-employment tax on your net profit (sales minus your cost of materials and expenses).
Do I get a 1099-K from Etsy?
Etsy issues a 1099-K when your sales reach the IRS reporting threshold for the year (the threshold has changed recently, so you may get one for modest sales). It reports gross sales before fees — report all of your business income whether or not a form arrives.
Is selling on Etsy taxable income?
If you're running a business — making items to sell for profit — yes, the net profit is taxable and reported on Schedule C. Casually selling your own used possessions for less than you paid generally isn't taxable, and that loss isn't deductible. Confirm your situation with the IRS.
What can Etsy sellers deduct?
Your cost of materials (COGS), Etsy's fees, shipping and postage, packaging, a qualifying home studio, and tools and equipment. Good records of what each item costs you to make are what make these deductions stick.
How much should Etsy sellers set aside for taxes?
A common rule of thumb is 25–30% of your net profit (sales minus cost of goods and expenses) for income tax plus the 15.3% self-employment tax — your exact rate depends on your total income and state. Use the Tax Set-Aside calculator for a tailored number.
Authoritative IRS resources
Free calculators for Etsy sellers
Stop guessing what you owe
UnifyOne tracks your handmade and craft sales earnings, expenses, and tax set-aside automatically — so quarterly taxes are never a surprise.
This guide is educational information, not tax advice. Tax rules, thresholds, and the IRS standard mileage rate change yearly — confirm current figures with the IRS or a qualified tax professional for your situation.