How Etsy Taxes Work in 2026
Etsy sellers who run a shop as a business are self-employed. You report your income and expenses on Schedule C, pay self-employment tax of 15.3% on 92.35% of your net profit, and pay federal and any state income tax on top. Nothing is withheld, so the IRS expects estimated payments during the year, and this calculator turns your numbers into a quarterly set-aside.
Schedule C starts with your gross receipts (what buyers paid you), then subtracts returns and allowances and your cost of goods sold, and only then your other business expenses. That is why the calculator has a separate box for cost of goods sold: the materials and inventory you actually sold are the biggest write-off for most makers, and entering them separately keeps your profit realistic.
Mileage deduction = (Jan–Jun miles × $0.725) + (Jul–Dec miles × $0.76)
Self-employment tax = Net profit × 92.35% × 15.3% (12.4% Social Security up to $184,500 + 2.9% Medicare)
Income tax = 2026 brackets on (Net profit − ½ SE tax − Standard deduction − QBI deduction)
Quarterly set-aside = (SE tax + Federal tax + State tax) ÷ 4
1099-NEC vs. 1099-K: Which Form Will You Get?
| Form | What it reports | Reporting threshold | What to do |
|---|---|---|---|
| Form 1099-NEC | Payments to you for services as an independent contractor | The IRS instructions set a $2,000 minimum for payments made in 2026 | Report all of your income on Schedule C, even if you receive no form |
| Form 1099-K | Payments received through payment cards or third party networks, shown as gross amounts | Federally, more than $20,000 and more than 200 transactions; some states use lower limits | It shows gross amounts, so deduct fees and expenses separately |
Thresholds and state rules change, so treat the table as a guide and confirm with your platform and the IRS pages above. Whether or not a form arrives, your net profit is taxable and belongs on Schedule C.
The 2026 Split Mileage Rate
The IRS changed the standard mileage rate part-way through 2026. You apply the rate for the date you drove each mile, so this page lets you enter your first-half and second-half miles separately.
| Period | Rate per business mile | Source |
|---|---|---|
| January 1 – June 30, 2026 | 72.5¢ | IRS Notice 2026-10 |
| July 1 – December 31, 2026 | 76¢ | IRS Announcement 2026-11 |
What You Can Deduct
| Expense | How it works |
|---|---|
| Cost of goods sold | Materials and inventory for items that sold this year (Schedule C, Part III). Unsold inventory is generally not deducted until it sells. |
| Etsy and payment processing fees | Listing, transaction and processing fees are deductible business expenses. |
| Shipping labels and packaging | Deductible when they are costs of fulfilling orders. |
| Ads and software | Etsy or off-site ads, photography tools, bookkeeping and design software used for the shop. |
| Business miles | Standard mileage rate: 72.5¢ (Jan–Jun) and 76¢ (Jul–Dec) in 2026 for post office and supply runs. |
| Home office | The simplified method is $5 per square foot up to 300 square feet, if the space qualifies. |
Worked Example: Etsy Earnings of $30,000
Scenario: a single Etsy seller in Texas with $30,000 of gross receipts, $9,000 of cost of goods sold, $3,000 of other expenses and 1,500 business miles (750 before July and 750 after). No other income.
- Mileage deduction: 750 × $0.725 + 750 × $0.76 = $1,114.
- Net profit: $30,000 − $9,000 cost of goods sold − $3,000 other expenses − $1,114 mileage = $16,886.
- Self-employment tax: $16,886 × 92.35% × 15.3% = $2,386.
- Federal income tax: after half of the SE tax and the $16,100 standard deduction, $0. (Texas, no state income tax.)
- Quarterly set-aside: $2,386 ÷ 4 = about $596, roughly 8% of gross earnings.
Related Tools and Guides
Use these pages to go further: the Complete Gig Worker Tax Guide for 2026, the Multi-Platform 1099 Tax Calculator, the Quarterly Estimated Tax Deadline Calculator, the Mileage Deduction Calculator, or the Etsy Seller Tax Calculator. Etsy is one of several gig income streams for many workers, so the multi-platform calculator adds them together, with state versions for California, New York, Texas and Florida. To stop missing deductible miles, see the best mileage tracking apps for gig workers.
Frequently Asked Questions
It depends on your net profit, not your gross sales. You owe self-employment tax of 15.3% on 92.35% of net profit, plus federal income tax (and state tax where it applies) after the standard deduction. In the example above, a seller with $30,000 of gross receipts, $9,000 of cost of goods sold, $3,000 of other expenses and 1,500 business miles has a net profit of $16,886 and should set aside about $596 per quarter, roughly 8% of gross receipts. Your own numbers will differ.
Etsy may report your payments on Form 1099-K when you cross the federal reporting threshold, which the IRS currently sets at more than $20,000 in gross payments and more than 200 transactions for third party settlement organizations. Thresholds have changed several times and some states use lower limits, so check the current rules and your Etsy dashboard for official documents. All income is taxable even if you receive no form.
The 1099-K shows gross sales and can include shipping and sales tax collected, so it is usually much higher than your profit. Your taxable profit is gross receipts minus returns, cost of goods sold and your business expenses. Reconcile the form against your own records and deduct fees, shipping and materials separately.
Cost of goods sold is the direct cost of the items you sold during the year, such as materials, supplies you consume making the products, or the wholesale cost of items you resell. It is reported in Part III of Schedule C and subtracted from gross receipts. Unsold inventory is generally not deducted until it sells, so ask a tax professional about your situation.
Most sellers with a profit do, if they expect to owe at least $1,000 in federal tax for the year after withholding and credits. The four 2026 due dates are April 15, June 15, September 15 and January 15, 2027. The calculator shows the amount to set aside for each one.
Yes. A shop that never earns a profit may be treated as a hobby, which limits what you can deduct. Keep good records, run the shop in a businesslike way and ask a tax professional how the rules apply to you.
Disclaimer: this calculator provides estimates for educational purposes only and is not financial, tax or legal advice. Consult a qualified professional before making financial decisions.