I only sold a few thousand dollars on Etsy. Do I have to report it?

Yes. Whether or not you get a 1099-K, and whether it's a hobby or a business, the income is reportable. A business reports on Schedule C, deducts Etsy fees and materials, and pays SE tax on net profit of $400 or more; hobby income goes in full on Schedule 1 with no expense deductions.

Does Etsy's 1099-K include sales tax?

No. Etsy says the sales tax it collects from buyers isn't reported on the 1099-K. The form shows gross sales, including shipping paid by buyers, with no reduction for refunds or Etsy fees, so subtract refunds to get gross receipts and list the fees as Schedule C expenses.

Can I choose to report my Etsy income as a hobby?

No. The facts decide: the IRS looks at how you run the activity, your time and expertise, your profit history and the personal pleasure involved, and profit in three of five years generally presumes a business. Hobby treatment avoids SE tax but allows no expense deductions.

When does Etsy issue the 1099-K, and what if I don't get one?

Sellers with more than $20,000 and more than 200 sales, or who meet a lower state threshold, can usually download it by the end of January. Not receiving one doesn't change what you owe; report the income from Etsy's payment account and order reports.

Etsy Hobby or Business? Reporting Your 1099-K

Etsy income is taxable whatever its size; the only question is how you report it. If you run the shop to make a profit, income and expenses go on Schedule C, Etsy's fees, your materials and shipping labels are deductible, and net profit of $400 or more also carries 15.3% self-employment tax. If the IRS treats it as a hobby, the income goes in full on Schedule 1 and the related expenses aren't deductible. Etsy's 1099-K is a gross figure that includes shipping and isn't reduced by refunds, but it leaves out the sales tax Etsy collected, so reconcile before you file.

What's the difference between a hobby and a business?

Plenty of Etsy shops start as a pastime: candles on weekends, sticker designs, silver jewelry. After a year of a few thousand or a few tens of thousands of dollars in sales, the first tax question is usually whether this is a hobby or a business.

The short version: you don't get to choose; the facts decide. Section 183 of the tax code covers activities not engaged in for profit. Hobby income is fully taxable, but the related expenses can't be deducted. Business income is taxed on net profit after expenses, and a loss can offset other income.

Business treatment: income, cost of goods sold and expenses go on Schedule C; net profit then goes through Schedule SE for self-employment tax, and you can usually take the qualified business income deduction of up to 20%.

Hobby treatment: income goes on Schedule 1, line 8j (activity not engaged in for profit income), and into total income. Miscellaneous itemized deductions have been suspended since 2018, and the One, Big, Beautiful Bill, signed in July 2025, made that permanent, so hobby expenses such as Etsy fees, ads, tools and a home office aren't deductible. For a hobby that sells goods, cost of goods sold can generally come off the receipts first to arrive at gross income. Hobby income isn't subject to self-employment tax, but it also earns no Social Security credits.

How does the IRS decide whether you have a profit motive?

The IRS fact sheet FS-2022-38 and Treasury Regulation §1.183-2(b) list a set of factors, and no single one decides. For an Etsy seller, these come up most:

Do you run it like a business? A separate bank account and card, complete books, and prices that account for materials, fees and time.

Have you changed things to make money? New products, new prices, new suppliers or new marketing after losses.

Expertise. Training in the craft and in running a shop, and whether you follow professional advice.

Time and effort. Occasional weekends, or regular weekly hours and maybe paid help.

History of income and losses. Whether you've had profitable years, and whether losses are typical startup losses or caused by events outside your control.

Personal pleasure and other income. Whether you do it mainly for fun, and whether you have high other income that a loss would shelter.

Section 183(d) adds a presumption: profit in three of five consecutive years generally means a for-profit activity. On the other hand, years of losses with no books make hobby treatment far more likely.

What's different about Etsy's 1099-K?

The threshold

The July 2025 law restored the federal 1099-K threshold for third-party settlement organizations to more than $20,000 and more than 200 transactions in a year. Etsy uses that threshold, or your state's lower one where it applies, and the form is usually available in your Etsy account by the end of January. The threshold decides whether Etsy sends a form, not whether you owe tax; income without a 1099-K is still reportable.

What the number includes

Etsy explains that the 1099-K reports gross sales without subtracting fees, refunds or shipping costs, and that sales tax Etsy collects from buyers is not reported on the 1099-K. That differs from some platforms, so there is no sales tax to back out of Etsy's figure.

Multiple shops and taxpayer details

Shops under the same SSN or EIN are combined into one 1099-K. Etsy reminds sellers to add taxpayer details at $250 in sales, and a shop that passes $500 in a calendar year without a valid SSN, ITIN or EIN is suspended. The name and number must match IRS records, or payouts can face 24% backup withholding.

Reporting as a business: from 1099-K to Schedule C

Step 1, gross receipts. Take the 1099-K gross and subtract refunds and canceled orders. That's Schedule C, line 1. Etsy fees don't come off here.

Step 2, cost of goods sold. Beginning inventory, plus materials and outsourced production bought during the year, minus ending inventory. Count inventory at year end.

Step 3, expenses. Listing, transaction and processing fees, Offsite Ads and Etsy Ads, shipping labels, packaging, software, camera gear and the home office, sorted into Schedule C's lines. Etsy's monthly payment account statement lists every fee.

Step 4, self-employment tax. Net profit × 92.35% × 15.3%; half of it is deductible in figuring adjusted gross income.

Step 5, keep a reconciliation. One sheet from 1099-K gross to refunds, gross receipts, expenses and net profit, ready if the IRS writes.

A worked example

Example (hypothetical numbers, to show the method): Ms. Chen sells stickers she designs and prints. Her 2026 1099-K shows $26,000 gross, including shipping paid by buyers, and she refunded $600. Etsy also collected about $1,800 in sales tax, which isn't on the 1099-K. Materials and printing come to $3,000 of cost of goods sold, Etsy fees to about $3,200, and shipping labels, packaging and software to $2,000.

As a business: gross receipts are $26,000 − $600 = $25,400; less $3,000 of cost of goods sold and $5,200 of expenses leaves net profit of $17,200. Self-employment tax is $17,200 × 92.35% × 15.3%, about $2,430. Income tax is figured on net profit less half the SE tax and less the QBI deduction.

If it were treated as a hobby: $25,400 less $3,000 of cost of goods sold puts $22,400 into income, the $5,200 of Etsy fees, shipping and software can't be deducted, and there is no QBI deduction. SE tax disappears, but $5,200 more income is taxed and no Social Security credits build up. More to the point, it isn't a choice: Ms. Chen's separate account, monthly books and pricing are evidence of a business.

What about selling your own used things?

Selling clothes, furniture or collectibles you used yourself for less than you paid is a personal loss: generally not taxable and not deductible. Selling for more than you paid is a capital gain to report. If such sales show up on a 1099-K, keep your purchase records and follow the IRS guidance on personal items reported on a 1099-K. If you regularly buy items to resell, that's a business.

How to look like a business, because you are one

Use a separate account and card, keep monthly books, have a pricing sheet and a simple plan, keep records of purchases, training and marketing, and write down what you're changing in a loss year. These are good habits, and they are also the strongest evidence if the IRS asks.

For Etsy's Creativity Standards, fees, sales tax, quarterly estimates and whether to form a company, see our Etsy seller guide; for 1099-K details and reconciliation, see the 1099-K guide. If you're unsure about your own situation, book a 15-minute free consultation or WeChat YCLUSA.