Etsy Taxes 2026: What Sellers Need to Know

Educational information, not professional tax advice. Consult a tax professional for your situation.

Is Etsy income taxable?

Yes. Profit from selling on Etsy is taxable income in the US and in most other countries, whether you sell full-time, part-time or as a side hustle. What matters is profit: your sales minus Etsy fees, materials, shipping and other business costs. That is why tracking expenses has such a big effect on what you owe.

In the US, most sellers are sole proprietors and report Etsy income and expenses on Schedule C with their personal tax return. If you set up an LLC or corporation, the forms change, but the principle is the same.

How much tax do Etsy sellers pay?

For a US sole proprietor, two taxes apply to Etsy profit:

• Self-employment tax — 15.3% (12.4% Social Security + 2.9% Medicare) on 92.35% of your net self-employment earnings, once those reach $400 for the year.
• Income tax — at your federal marginal rate (10% to 37%), plus state income tax where your state has one. Half of your self-employment tax is deductible when you calculate income tax.

Example: $24,000 of sales, about $2,640 of Etsy fees and $9,000 of costs leave roughly $12,360 of profit. Self-employment tax comes to about $1,750. In the 12% federal bracket with a 5% state tax, income tax adds about $1,950 — so around $3,700 in total, or about $310 to put aside each month. Run your own numbers in the Etsy tax calculator.

Will Etsy send me a 1099-K?

Etsy issues Form 1099-K to US sellers who cross the federal reporting threshold. After the July 2025 tax law change, that threshold is back to more than $20,000 in payments and more than 200 transactions in a calendar year, and some states use lower thresholds of their own. Receiving a 1099-K, or not, does not change what you owe: all business income is reportable either way. If you do receive one, the gross amount on it includes fees and shipping, so you still deduct your expenses on Schedule C.

Etsy tax deductions

Every legitimate business expense lowers your taxable profit. The common ones for Etsy sellers:

Etsy fees

Listing fees, transaction fees, payment processing, Offsite Ads, Etsy Ads and Etsy Plus. Your monthly Etsy statements total them for you.

Cost of goods sold

Materials that go into what you sell: yarn, wax, beads, fabric, blanks, ink, paper, and licences for fonts or graphics used in products.

Shipping and packaging

Labels, postage, boxes, mailers, tissue, tape and protective packaging.

Equipment

Cutting machines, printers, cameras, lighting and tools. Larger items may need to be depreciated over several years rather than deducted at once.

Software and services

Design software, accounting software, listing tools and other subscriptions used for the shop.

Home office

If part of your home is used regularly and exclusively for the business, you may deduct a share of rent or mortgage interest, utilities and internet.

Mileage and supplies runs

Business trips to buy supplies or drop off parcels can be deductible if you keep a mileage log.

Sales tax and VAT: who collects it?

In the US, Etsy collects and remits sales tax on orders to states with marketplace facilitator laws, which now covers nearly all states with a sales tax. In the UK, EU and several other regions, Etsy collects VAT or GST on orders where local rules make the marketplace responsible. This tax is paid by the buyer and passed through Etsy — it is separate from the income tax on your own profit, and it is not your revenue.

Quarterly estimated taxes (US)

Nobody withholds tax from your Etsy payouts. If you expect to owe $1,000 or more for the year, the IRS generally expects estimated payments four times a year (around April 15, June 15, September 15 and January 15). Missing them can mean an underpayment penalty even if you pay in full at filing time.

The simplest system: move a fixed percentage of every Etsy deposit into a separate savings account the day it arrives. Many sellers use 25–30% of profit; the calculator gives you a figure for your own bracket.

Hobby or business?

If you sell regularly to make a profit, the IRS treats it as a business, which lets you deduct expenses. Genuine hobby income is still taxable, but hobby expenses are not deductible — usually a worse deal. Keeping business records, a separate bank account and a profit motive all point to a business.

Selling on Etsy outside the US

• United Kingdom — Etsy income is self-employment income. The £1,000 trading allowance can cover very small sellers; above that, you register for Self Assessment. Platforms like Etsy now report seller income to HMRC.
• European Union — Under the DAC7 rules, Etsy reports seller earnings to tax authorities. How you are taxed depends on your country and business status.
• France — Most small sellers use the micro-entrepreneur status, where social contributions are calculated as a percentage of turnover rather than profit, with income tax on top.
• Canada and Australia — Etsy income is business income; registration for GST/HST or GST becomes relevant once you pass the local threshold.

Rules change, so check your tax authority's current guidance or ask a local accountant.

Records to keep

• Monthly Etsy statements and your annual sales summary
• Receipts for materials, packaging and equipment
• Shipping label reports
• Bank statements for a dedicated business account
• A mileage log, if you claim travel