Etsy Taxes Under $600: Do You Still Have to Report?

Made under $600 on Etsy in 2025? Here is what you still owe when you file your 2025 taxes in 2026.

Megan Foster sold handmade soaps on Etsy for most of the year — a side project she started after her youngest started kindergarten. She made $480 total. No 1099 from Etsy. No letter from the IRS. Nothing arrived.

The logic was airtight, or so it seemed: no form meant nothing to report. Businesses got forms. She wasn't a business. She was a mom who sold soap online twice a month.

Her tax preparer had a different take.

Megan's situation reflects the most common misconception among small Etsy sellers. Details are illustrative.

The $600 threshold — and now $2,500 for 2025 — determines when Etsy sends you a form. It has almost nothing to do with whether you owe taxes. Here's what actually matters.

The Two Thresholds You're Probably Confusing

Most Etsy sellers under $600 are confusing two completely separate rules:

Threshold	What It Controls	Set By
$2,500 (2025)	When Etsy sends you a 1099-K	IRS reporting rule
$600 (2026+)	When Etsy will send a 1099-K	IRS reporting rule
$400	When you owe self-employment tax	IRS tax law

The 1099-K threshold is about paperwork. The $400 threshold is about actual tax owed.

Etsy not sending you a form doesn't make your income invisible to the IRS — and it doesn't exempt you from paying tax on it.

What Actually Determines If You Owe

Two questions decide your tax situation when you earn under $600 on Etsy:

Question 1: Is this a business or a hobby?

Business: You're trying to make a profit. You track expenses, reinvest in materials, and operate with some regularity.

Hobby: You sell occasionally for fun. Income is incidental. You're not trying to run a business.

This distinction matters enormously:

	Hobby	Business (Schedule C)
Report income?	✅ Yes	✅ Yes
Self-employment tax	❌ No	✅ Yes (if net > $400)
Deduct expenses?	❌ Cannot exceed income	✅ Full deduction
Where reported	Schedule 1, Line 8	Schedule C

Question 2: What's your net profit?

If you're a business: Net profit = gross sales minus business expenses. SE tax applies if net profit exceeds $400.

If you're a hobby: All income is reportable, no expense deductions, no SE tax.

Megan's Situation: What She Actually Owed

$480 in Etsy soap sales. Let's run both scenarios.

Scenario A — Hobby income:

Item	Amount
Gross Etsy sales	$480
Deductible expenses	$0 (hobby = no deductions)
Reportable income	$480
SE tax	$0 (hobby = no SE tax)
Income tax (10% bracket)	~$48
Total owed	~$48

Scenario B — Business (Schedule C):

Item	Amount
Gross Etsy sales	$480
Supplies (soap base, molds, fragrance)	− $210
Etsy fees	− $45
Packaging	− $30
Net profit	$195
SE tax (net < $400)	$0
Income tax on $195	~$20
Total owed	~$20

In Megan's case, running as a business actually saved her money — because her expenses brought net profit below the $400 SE tax threshold. And if her income is low enough that the $195 gets swallowed by the standard deduction, she may owe $0 total.

The worst outcome is treating it as a hobby with no deductions, then paying income tax on the full $480.

When You Genuinely Owe Nothing

There are legitimate scenarios where Etsy income under $600 results in zero tax:

Scenario 1 — Net profit under $400 (business) Your expenses (supplies, Etsy fees, packaging, shipping materials) reduce net profit below $400. No SE tax. If your total income including Etsy is below the standard deduction ($15,000 single in 2025), no income tax either.

Scenario 2 — Selling personal items at a loss You sold old handmade items or personal goods for less than you paid to make or buy them. No gain = no tax. You may still need to document this if you receive a 1099-K.

Scenario 3 — True hobby with very low total income Hobby income is added to your total income. If your total taxable income (after the standard deduction) is $0, you owe nothing — even on the Etsy income.

Does Etsy Report Your Sales to the IRS Even Without a 1099?

For 2025, Etsy sends a 1099-K only if gross sales exceeded $2,500. Below that, Etsy does not file a 1099-K with the IRS.

However:

The IRS expects you to self-report all income regardless of whether you receive a form
Etsy may still share aggregate payment data with the IRS through other reporting mechanisms
If you're audited, the IRS can request your Etsy transaction records directly

"Etsy didn't send me a form" is not a defense for not reporting. The legal obligation runs from you to the IRS — not from Etsy to the IRS.

IRS source: About Form 1099-K

How to Report Etsy Income Under $600

If running as a business (Schedule C):

Total your gross Etsy sales (from your Etsy payment account)
Total all deductible expenses (supplies, fees, shipping materials, packaging)
Calculate net profit
If net profit ≥ $400: file Schedule C + Schedule SE
If net profit < $400: file Schedule C (no Schedule SE required)

If treating as hobby income:

Report total sales on Schedule 1, Line 8 (Other Income)
No deductions, no Schedule C
Pay income tax on the full amount

Most tax software asks directly: "Did you have income from self-employment or a side business?" Answer yes if you're operating as a business. It'll walk you through Schedule C.

The $400 Rule: What It Means Exactly

The $400 self-employment tax threshold applies to net profit, not gross sales.

Gross Etsy sales: $580
Expenses (supplies, fees, packaging): $220
Net profit: $360
SE tax owed: $0 (under $400)
Income tax: potentially owed depending on your total income

You still file Schedule C and report the activity. You just don't owe SE tax when net profit is under $400.

If your expenses are minimal and net profit is $450, SE tax applies:

$450 × 92.35% × 15.3% = $64 SE tax

Not catastrophic — but you do owe it, even without a 1099.

Hobby vs Business: How the IRS Actually Decides

The IRS doesn't just take your word for it. Factors they examine:

Do you keep records and track expenses?
Do you depend on the income?
Have you ever made a profit?
Do you operate in a businesslike manner?
How much time do you put in?

The 3-of-5 presumption: If you've made a profit in at least 3 of the last 5 years, the IRS presumes it's a business. Below that, they look at the full picture.

For most small Etsy sellers in their first year: if you're actively trying to grow sales, tracking costs, and reinvesting in supplies, you're likely a business. If you listed a few handmade items once or twice with no real profit intent, hobby may be accurate.

When in doubt, consult a tax professional — especially if you've had losses for multiple years in a row.

IRS source: Hobby or Business?

Frequently Asked Questions

I made $380 on Etsy and my expenses were $150. Do I owe anything?

Net profit is $230 — under the $400 SE tax threshold. No SE tax owed. Whether you owe income tax depends on your total income for the year. If your total taxable income (all sources combined, minus standard deduction) is above $0, the $230 adds to it. At the 10% bracket, that's $23. If total income is below the standard deduction, you owe nothing.

Etsy didn't send me a 1099-K. Does that mean the IRS doesn't know about my sales?

Not necessarily. The IRS knows Etsy exists and can subpoena records. More practically: if you're ever audited, they'll look at your bank deposits. Unexplained income — even $480 — can create problems. The safer approach is to report everything and let your expenses reduce what you owe.

Can I deduct the cost of supplies I bought before my first sale?

Yes, if they were used for the business. Pre-opening inventory costs are generally deductible in the year the business begins. Keep receipts for anything you bought to start your Etsy shop.

What if I only sold items I already owned — old crafts, inherited goods?

If you sold items for less than their original cost, there's no taxable gain. If you sold for more than cost, it's a capital gain — taxed at capital gains rates, not SE tax. This applies to reselling personal property, not manufacturing new items for sale.

I sold under $600 this year but plan to grow next year. Should I file as a business now?

Filing as a business (Schedule C) this year establishes the activity as a business from the start — which supports future loss deductions and avoids the hobby classification if income doesn't grow immediately. Even at low income levels, filing Schedule C is generally the right call if you're genuinely trying to build a selling business.

Megan's tax preparer walked her through Schedule C. With her soap supplies, Etsy fees, and packaging costs, her net profit came to $195 — below the $400 SE tax threshold. Her total extra tax: $20. "I was so relieved," she says. "I built it into my pricing after that. Every batch of soap has a little set aside for next April."

This article is for informational purposes only and does not constitute tax advice. Tax laws change frequently and vary by state. Consult a qualified tax professional for guidance specific to your situation.