PiggyEtsy Seller Taxes (2026)
Selling on Etsy is a business in the eyes of the IRS the moment you are doing it for profit, and it has one feature the delivery apps do not: inventory. That changes the arithmetic, usually in your favour.
What you owe, regardless of paperwork
This part does not depend on which form arrives. Etsy income is business income: it goes on Schedule C, and once your net profit for the year reaches $400 you owe self-employment tax on it — 15.3%, made up of 12.4% for Social Security up to the $184,500 wage base and 2.9% for Medicare with no cap, charged on 92.35% of profit. Federal income tax is separate and sits on top.
Which form to expect
From Etsy you will typically a 1099-K from Etsy Payments.
Etsy processes buyers' payments and passes them to you, which makes it a payment settlement organisation. Reporting thresholds for 1099-K have moved repeatedly in recent years, so no form does not mean no tax — your Etsy shop's own financial reports are the authoritative record either way.
The distinction matters less than people think. A 1099-NEC means a business paid you directly for work. A 1099-K means a platform settled payments on your behalf. Either way it is Schedule C income, and either way the absence of a form changes nothing about what you owe.
Cost of goods sold is not an ordinary expense
Materials that go into a product you sell are cost of goods sold, and they are subtracted before you even get to expenses. What you can deduct in a given year is the cost of what you actually sold, not everything you bought — unsold stock stays on the books as inventory. Sellers who buy heavily in December expecting a deduction often find it does not arrive until the stock moves.
What you can deduct
- Cost of goods sold — Materials, blanks, packaging that ships with the product, for items actually sold.
- Etsy fees — Listing, transaction, payment processing and offsite ads fees. All deductible, all in your Etsy reports.
- Shipping — Postage and shipping supplies, where you paid rather than the buyer.
- Home studio — The portion of your home used regularly and exclusively for the shop.
- Equipment — Cameras, printers, cutting machines, kilns — often eligible for immediate write-off.
- Software and subscriptions — Design tools, bookkeeping, photo editing.
What this looks like in numbers
| Gross earnings | Deductible expenses | Net profit | Federal SE tax |
|---|---|---|---|
| $15,000 | $4,000 | $11,000 | $1,554.25 |
| $30,000 | $8,000 | $22,000 | $3,108.50 |
| $55,000 | $14,000 | $41,000 | $5,793.12 |
Self-employment tax only — 15.3% on 92.35% of net profit. Federal and state income tax sit on top and depend on your filing status and any other household income, so they are not estimated here. Use the Quarterly Tax Calculator for a combined figure.
Notice what the expense column does. Every deductible dollar removes about 14 cents of self-employment tax before income tax is even considered — which is why tracking beats guessing.
Quarterly payments
Nothing is withheld from what Etsy pays you, so the IRS expects payments four times a year rather than one bill in April. The trigger is expecting to owe $1,000 or more for the year. Missing them brings an underpayment penalty even if you pay in full at filing — the safe harbor rule is how you avoid it.
Run your own numbers
- Self-Employment Tax Calculator — the 15.3%, exactly.
- Quarterly Tax Calculator — what to send the IRS each quarter.
- Section 179 Equipment Calculator — write off cameras, computers and tools in the year you buy them.
- Home Office Deduction — if you work from home.
- Self-employment tax by state — what your state adds.
Frequently asked questions
Do I have to pay taxes on Etsy income?
Yes. It is self-employment income and goes on Schedule C. Once your net profit for the year reaches $400 you also owe self-employment tax, whether or not any 1099 arrived.
What if Etsy never sent me a 1099?
You still report the income. A 1099 is a copy of what the payer told the IRS; it is not what creates the obligation. Thresholds change and forms go missing — your own records and the platform's earnings statements are what you file from.
How much should I set aside?
A common working figure is 25–30% of net profit, covering self-employment tax plus federal income tax. Put it in a separate account on the day you are paid rather than at the end of the month.