Etsy Taxes: What You Need to Know as an Etsy Seller

Virginia Miller

September 11, 2024

In this article

The growth of eCommerce has made this sector profitable and prominent. A lot of revenue comes from the eCommerce sector every year. One of the eCommerce platforms that we should talk about is Etsy. Etsy is a profitable eCommerce platform where thousands of small businesses and artists sell handmade products. When you start selling products on Etsy and make a profit, you become a business owner.

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However, to become a business owner with an operated business on Etsy, you must deal with a lot of paperwork and taxes. In this article, we will learn about the taxes you must pay on Etsy and how to handle them for more success. Let us go into detail about Etsy taxes and how to tackle them.

Do You Need To Pay Taxes On Etsy Sales?

As an Etsy seller, you likely want to maximize your profits and minimize your taxes. However, there are some required taxes you must pay to operate smoothly on Etsy. You need to pay income taxes on your Etsy earnings, depending on your total income. It's important to understand the different taxes so you can prepare accordingly.

Mandatory Etsy Taxes

Some tax deductions are required for every Etsy seller. Etsy reports your gross earnings on Form 1099-K. However, you still need to claim your Etsy sales as income on your taxes, even without a 1099-K form. In states with sales tax, you must collect and remit taxes on all Etsy orders shipped to those states.

Profits or Losses

Whether you register your Etsy shop as a business or not, you need to file Schedule C each year. In some cases, you may be able to file the simpler Schedule C-EZ form instead. You can use Schedule C-EZ if your business does not show a net loss for the year.

Self-Employment Tax

If you are self-employed, you need to pay self-employment tax. Anyone earning more than $400 from self-employment must pay this tax by filing Schedule SE. Self-employment tax is paid annually. Check IRS.gov for more details.

State Income Tax

Some states levy state income tax, which you must pay if operating an Etsy business there. You normally pay state tax annually, but some states require estimated quarterly payments. Rules vary widely, so research requirements in your state or consult an accountant.

Sales Tax

In some states, sellers must collect and remit sales tax. Sales tax helps fund roads, schools, and other public infrastructure. Unlike income tax, sales tax is added onto the product price paid by the customer rather than deducted from business profits. Rates vary based on product type, and sellers must add the appropriate sales tax to the listed price.

Whether Etsy collects sales tax depends on if your shop is a hobby or business. Hobby sellers may still need to remit taxes if profits are regular and significant. Many Etsy shops start as hobbies but grow into businesses. If your shop becomes consistently profitable, make sure to understand your tax obligations.

What Taxpayer ID Should You Have?

If you are the sole owner, use your Social Security number or apply for an Employer Identification Number (EIN). An EIN provides more credibility and identity protection. Etsy sellers should consider getting an EIN even if not required.

Etsy Sales Tax Collection

State and local governments charge sales tax on a portion of Etsy sales. To simplify compliance, Etsy automatically collects and remits sales tax in 42 states. If your state is covered, you do not have to take any additional action. In uncovered states, you are responsible for remitting applicable sales taxes.

Annual Income Taxes

You owe annual income tax based on your net business profit as reported on Schedule C. The US tax system is "pay as you earn," so taxes should be paid quarterly rather than waiting for year-end.

Quarterly Estimated Taxes

If you expect to owe over $1,000 in annual taxes, the IRS requires estimated quarterly payments. This allows you to pay throughout the year rather than owe a large sum at tax time. Payments are due April 15, June 15, September 15, and January 15. Use Form 1040-ES and pay online or enroll in the Electronic Federal Tax Payment System (EFTPS) for easy automated payments.

Required Tax Forms

As an Etsy seller, you need to file the following tax forms:

Form 1040

The main tax return for reporting annual personal income.

Schedule C and Schedule C-EZ

Required forms for reporting self-employment business income and expenses.

Schedule SE

For paying self-employment tax, required if you earn over $400 from self-employment.

Follow Etsy's guides and consult a tax professional to ensure you meet all requirements.

FAQs

Do I need to pay taxes on income from my Etsy shop?

Yes, you must report all Etsy shop income and pay applicable taxes. The amount owed depends on your total annual earnings and deductions.

What taxes do Etsy sellers need to pay?

Common taxes for Etsy sellers include federal income tax, state income tax, self-employment tax, and sales tax in states that require it.

How much income tax will I owe on my Etsy earnings?

Your income tax rate depends on your total annual income and deductions. Schedule C is used to calculate net business profit, which is added to your other income and taxed at your personal rate.

Does Etsy collect sales tax for sellers?

Yes, Etsy automatically collects and remits sales tax in 42 states. If your state is not covered, you must collect and remit applicable sales taxes yourself.

When do I need to pay estimated quarterly taxes?

You generally need to make estimated tax payments each quarter if you expect to owe over $1,000 when you file your annual tax return.

What tax forms do Etsy sellers need to file?

Key tax forms include Schedule C, Form 1040, and potentially Schedule SE. You may also need to file state tax forms depending on where you operate.

Should I get an EIN or use my Social Security number?

An EIN provides more credibility and identity protection, so Etsy sellers should consider applying for one. Otherwise, your SSN can be used.