The 1099-K threshold
The 1099-K threshold for federal income taxes is gross sales over $20,000 and more than 200 transactions. For state taxes, the 1099-K threshold and tax requirements can vary. For example, some states have lower dollar-amount thresholds, such as the $600 threshold in:
- District of Columbia
- Maryland
- Massachusetts
- Montana
- North Carolina
- Vermont
- Virginia
This may cause your internet marketplace to automatically send you a 1099-K even if it is below the threshold.
Not receiving a 1099-K doesn’t mean no tax obligation
Whether or not Etsy sends you a form, every dollar of profit from your shop is taxable income you have to report. The 1099-K threshold only determines whether Etsy formally tells the IRS about your sales; it has no bearing on whether you owe tax.
Why your 1099-K shows gross sales, not profit
The number on your 1099-K reflects your total gross payment volume: item prices, shipping charged to buyers, and gift wrap fees, before Etsy deducts its own fees. If you sold $30,000 worth of goods and paid $2,800 in Etsy fees, your 1099-K will still show close to $30,000. You report that gross figure on Schedule C; you can then subtract your business expenses to get your actual taxable profit.
Etsy shop classification: Hobby vs. business
If you’re selling regularly and trying to turn a profit, the IRS generally treats your shop as a business, which means you file Schedule C and can deduct legitimate expenses like:
- Materials
- Etsy fees
- Shipping
Report your gross Etsy sales as income on Schedule C, subtract your deductible business expenses to arrive at net profit, and that profit flows to your Form 1040. If your net earnings from self-employment reach $400 or more, you’ll also owe self-employment tax, calculated on Schedule SE.
If your shop is more of an occasional hobby, the income is still taxable, but you can’t deduct expenses against it the same way. Hobby income is reported directly on the 1040 under “Other Income.”
