It’s the most panicked question in every Etsy seller forum come January: “I didn’t get a Etsy 1099-K form… does that mean I don’t have to pay taxes?”
The short answer is: No. You must report every dollar you earn, form or no form.
However, the rules for who gets this form have become a confusing mess of delays, reversals, and state-specific laws. Thanks to the reinstatement of higher thresholds for the 2025 tax year, many of you won’t receive the paper, but you are still on the hook with the IRS.
Here is the definitive guide to the Etsy 1099-K for 2026, including the “Hidden State Trap” that catches thousands of sellers every year.
The “One Big Beautiful Bill” & The $20,000 Threshold
For years, the IRS planned to lower the federal reporting threshold to just $600. However, for the 2025 tax year, the “One Big Beautiful Bill Act” (OBBBA) has effectively reverted the federal requirement to the old standard.
The Federal Rule for 2025/2026:
Etsy is federally required to send you Form 1099-K only if you meet BOTH of these criteria:
- You had over $20,000 in gross payment volume.
- AND you had more than 200 separate transactions.
If you sold $19,000 across 500 sales? No federal form.
If you sold $50,000 in just 5 big sales? No federal form.
The “No Form” Myth (Don’t Fall For It!)
This is the biggest misconception in the gig economy. The 1099-K is just an informational slip; it is not a permission slip to ignore income.
If you earned $5,000, you don’t meet the federal reporting threshold for the form, but you absolutely meet the requirement to file taxes. If you are audited and the IRS sees deposits in your bank account that you didn’t report, you will face penalties and interest.
The “Hidden Trap”: State Thresholds
Here is where it gets tricky. Even if you don’t meet the $20,000 federal limit, your state might force Etsy to send you a 1099-K anyway.
Many states have “decoupled” from federal delays and enforce their own strict limits. If you live in one of these states, expect a form if you cross these numbers:
| State | Threshold to Receive 1099-K |
| Illinois | $1,000 & 4+ transactions |
| Massachusetts | $600 |
| Virginia | $600 |
| Maryland | $600 |
| Vermont | $600 |
| New Jersey | $1,000 |
| Arkansas | $2,500 |
| District of Columbia | $600 |
Note: States like California and New York generally follow federal rules, but always check your local Department of Revenue.
Why is the Amount on My Etsy 1099-K So High?
If you do receive a form, don’t have a heart attack when you see the number in Box 1a. It will likely be much higher than what actually hit your bank account.
The 1099-K tracks “Gross Payment Volume”. This includes:
- The price of the item.
- Shipping fees collected from the buyer.
- Sales tax collected by Etsy.
You do NOT pay taxes on that full number.
Your job on your tax return (Schedule C) is to “reconcile” this. You list the Gross Amount as income, and then you deduct the fees, shipping, and taxes as expenses to show the IRS your actual profit.
How to Reconcile Your 1099-K
- Line 1 (Gross Receipts): Enter the total number from Box 1a of your 1099-K.
- Part II (Expenses): Deduct the Etsy fees, listing fees, and shipping labels you purchased.
- Returns: If you refunded a customer, that money is still included in the 1099-K total. You must deduct it as “Returns and Allowances” on Schedule C.
What if the Form is Wrong?
If your 1099-K has the wrong Social Security Number or the amount is clearly an error (e.g., includes personal money sent via PayPal), do not just ignore it.
- Contact Etsy Support immediately to request a corrected form.
- If they cannot fix it in time, file your taxes with the correct numbers and include an explanation (or use Schedule 1 to “back out” the error amounts), so the IRS computer doesn’t flag you for under-reporting. Understanding your Etsy 1099-K is essential for tax compliance.
Ready to lower that taxable income? Check out our guide on Deducting Every Etsy Fee Possible or verify if you qualify as a Business or Hobby.