It's one of the most-searched — and most-dreaded — Etsy questions: do I have to pay taxes on what I make? The short answer is yes, if you're selling to make a profit rather than clearing out your closet. But the honest, useful answer is more reassuring than the panic online suggests, because you're taxed on your profit, not on the big scary number Etsy reports. Here's how it actually works in 2026.
This is general information, not tax advice — rules vary by country and situation, so confirm your specifics with a local tax professional.
First, clear up the 1099-K confusion
You may have read that Etsy now sends a tax form (a 1099-K, for US sellers) once you make just $600. That was the plan — but it was reversed. Under the 2025 tax law, the federal 1099-K threshold reverted to the old rule: Etsy issues one only if your gross sales exceed $20,000 and you have more than 200 transactions in the year. Both must be true. A lot of blog posts still quote the $600 figure; as of 2026 that's outdated.
One catch: several US states set lower thresholds (for example around $600 in states like Maryland, Massachusetts and Vermont), so you may get a form from your state even when the federal rule wouldn't trigger one.
The part that trips everyone up: a form is not the same as owing
Here's the point most sellers miss. Whether or not a 1099-K lands in your mailbox, all profit from selling to make money is reportable income. The form is just Etsy telling the tax authority what passed through your account — it doesn't decide what you owe, and its absence doesn't make income tax-free. So "I didn't get a 1099-K" is not the same as "I don't owe tax." If you're running a real shop, report it.
You're taxed on profit — and the 1099-K number is not your profit
This is the reassuring part, and it's exactly where our whole product lives. A 1099-K reports gross sales — the total that flowed through Etsy Payments. That number is inflated: it includes the shipping buyers paid, and often the sales tax Etsy collected and remitted for you — money that was never yours to keep. Nobody is taxed on that gross figure.
You're taxed on net profit: your sales minus your legitimate business expenses. And Etsy sellers have a lot of those. (If your payout already feels smaller than your sales, this is part of why — see why your payout is lower than your sales.)
The deductions most sellers leave on the table
Every ordinary, necessary cost of running the shop generally reduces your taxable profit. The big ones:
- Every Etsy fee — listing, transaction, payment processing, Offsite Ads, regulatory operating fee, currency conversion, and (for UK/EU/TR sellers) the VAT charged on those fees. All of it is a business cost.
- Materials and supplies — your cost of goods sold.
- Shipping labels and packaging — the postage you actually paid, plus mailers, boxes and labels.
- Tools and overhead — a share of software subscriptions, a home-office portion, mileage to the post office, and similar.
Sellers who skip these overpay, because they let the gross 1099-K number stand in for profit. The whole game is subtracting everything you're entitled to.
US: self-employment tax is the surprise
If your net profit from the shop is $400 or more, US sellers generally owe self-employment tax (Social Security and Medicare) of about 15.3% on that profit, on top of regular income tax. It's usually reported on Schedule C with your return. This is the line that catches new sellers off guard — so the more accurately you track deductions, the smaller that taxable base becomes.
Outside the US
The structure is similar even if the forms differ: profit from a trading activity is taxable income, often via a self-assessment or annual return, and business costs are deductible. UK/EU sellers should also keep the separate VAT question in mind — that's about your sales, not income tax, and kicks in at national registration thresholds. When in doubt, a local accountant is worth far more than they cost.
What to do before tax season
You don't need to be an accountant — you need clean numbers. Keep a running total of sales, every Etsy fee, and your costs, so that when a return is due you're subtracting real figures instead of guessing from a gross 1099-K. If your records only show Etsy's inflated top line, you'll either overpay or scramble.
Where accurate records come from
The problem is that Etsy's screens report gross sales and a misleading "net profit" line that ignores your materials and labor, organized by date rather than in a tidy annual expense summary. That's the gap Seller Profit Lens closes: it connects to your shop read-only, reads the fees Etsy actually charged to the cent, subtracts the costs you enter, and reconciles so your numbers match Etsy's — giving you a real profit figure and a clean fee-and-cost breakdown to hand your accountant. You can also sanity-check a single sale's fees with our free Etsy fee calculator. It's in free beta now. Join the waitlist →