Etsy and eBay sellers often assume that because these platforms collect and remit sales tax on their behalf, their tax obligations are fully handled. They're not. Marketplace facilitator laws have simplified sales tax for marketplace transactions — but your income tax obligations, international VAT, and self-employment taxes are entirely your responsibility.
This guide covers everything Etsy and eBay sellers need to know about their tax obligations in 2025.
📚 Quick Overview
Etsy and eBay are marketplace facilitators — they collect and remit US sales tax on your behalf. But you still owe: income tax on profits, self-employment tax, potentially VAT if selling to EU/UK customers, and quarterly estimated tax payments if your annual liability exceeds $1,000 (US) or you're on Self Assessment (UK).
How Marketplace Facilitator Laws Work for Etsy & eBay
What Etsy and eBay Handle
As marketplace facilitators, both Etsy and eBay automatically calculate, collect, and remit US state sales tax on all marketplace transactions. This means:
- You do not need to collect sales tax on Etsy or eBay sales in any US state
- The sales tax collected is held and remitted by the platform — not you
- Your 1099-K (if issued) shows gross sales including the marketplace-collected sales tax
- You may still need to file zero-liability returns in states where you're registered
What You Still Owe (And Handle Yourself)
- Federal and state income tax on your net profit
- Self-employment tax (US) — 15.3% on net self-employment income up to $160,200
- UK VAT if selling to UK customers and above the registration threshold (or storing goods in UK)
- EU VAT via IOSS for goods under €150 shipped to EU customers
- Sales tax in states where you have physical nexus AND sell through channels beyond Etsy/eBay
Income Tax for Etsy & eBay Sellers
How Your Profit Is Calculated
You owe income tax on net profit — not gross sales. Net profit is your total revenue minus all allowable business expenses:
| Revenue / Expenses | Amount |
|---|---|
| Gross Etsy/eBay sales | $60,000 |
| Less: Cost of goods (materials, wholesale) | ($22,000) |
| Less: Platform fees (listing, transaction, payment processing) | ($7,200) |
| Less: Postage and packaging | ($4,800) |
| Less: Photography and listing costs | ($1,500) |
| Less: Home office portion | ($2,400) |
| Less: Software and subscriptions | ($960) |
| Net taxable profit | $21,140 |
You owe income tax on the $21,140 — not the $60,000. Getting your books right and claiming all deductions is the difference between a manageable tax bill and a crippling one.
Are You Overpaying Tax on Your Etsy or eBay Income?
Most marketplace sellers overpay because they don't claim all allowable deductions. Book a free consultation and we'll identify what you're missing.
Book Free Tax Review →The 1099-K: What It Means and What to Do
In the US, if your Etsy or eBay sales exceed $5,000 (2024) or $600 (from 2025), the platform is required to issue you a Form 1099-K and send a copy to the IRS. Important: the 1099-K shows gross sales including sales tax collected by the platform. This creates a mismatch if you don't account for it correctly on your tax return.
⚠ The IRS matches 1099-Ks to your tax return automatically. If the gross amount on your 1099-K doesn't reconcile with what you report, expect a letter from the IRS. Your accountant must properly deduct the marketplace-collected sales tax from your 1099-K gross before calculating your taxable income.
Quarterly Estimated Tax Payments
US sellers with expected annual tax liability over $1,000 must pay estimated taxes quarterly:
- Q1 (Jan–Mar): Due April 15
- Q2 (Apr–May): Due June 15
- Q3 (Jun–Aug): Due September 15
- Q4 (Sep–Dec): Due January 15 of the following year
Failure to make quarterly payments results in an underpayment penalty even if you pay your full tax bill by April 15.
UK Tax for Etsy & eBay Sellers
Self Assessment
If your Etsy or eBay income exceeds £1,000/year (the UK trading allowance), you must register for Self Assessment and file an annual tax return. Your tax return reports:
- Total turnover from marketplace sales
- Total allowable expenses (claimed against your trading income)
- Net profit — taxed at your marginal income tax rate (20%, 40%, or 45%)
- Class 4 National Insurance contributions (9% on profits £12,570–£50,270; 2% above)
UK VAT for Etsy & eBay Sellers
If your UK taxable turnover exceeds £90,000, you must register for VAT. Once registered:
- Add 20% VAT to all UK sales through your own channels
- File quarterly VAT returns via Making Tax Digital-compliant software
- Reclaim VAT on eligible business purchases
International VAT: Selling to EU Customers
If you ship goods from the UK (or anywhere outside the EU) to EU customers:
- Orders under €150: Register for IOSS and collect the destination country's VAT rate at checkout. Without IOSS, customers pay import VAT on delivery — leading to abandoned parcels and bad reviews.
- Orders over €150: Import VAT and customs duties are handled by the customer or a fiscal representative at import. Consider using a third-party logistics provider with EU warehousing to avoid this complexity.
Etsy-Specific Tax Tips
- Offsite Ads fees: If you're enrolled in Etsy's Offsite Ads program, the 12–15% fee charged when a sale originates from an external ad is fully deductible.
- Etsy Plus subscription: The $10/month Etsy Plus subscription is a deductible business expense.
- Pattern by Etsy: Monthly fee is deductible. Any revenue from sales through your Pattern website is reported separately from marketplace sales.
eBay-Specific Tax Tips
- Selling vintage or used personal items: Generally not taxable income if sold below original purchase price. Keep purchase receipts as evidence of original cost.
- eBay Stores subscription: Monthly or annual subscription fees are deductible.
- Promoted Listings fees: eBay's Promoted Listings Standard fees (percentage of sale) are deductible marketing expenses.
- Managed Payments: eBay now handles all payments. Your monthly selling statement from eBay is your reconciliation document — treat it like an Amazon settlement report.
✓ Record keeping requirement: Keep all business records for at least 6 years (UK) or 7 years (US). This includes sales records, purchase receipts, postage receipts, and any COGS documentation. Digital storage in a cloud accountancy tool like Xero or QuickBooks satisfies HMRC's digital record-keeping requirements.
When to Hire an Accountant for Your Marketplace Business
Consider professional accounting help when:
- Your annual marketplace revenue exceeds $20,000 / £15,000
- You sell on more than one platform
- You sell internationally (even just to UK customers from the US, or vice versa)
- You have not filed a tax return or VAT return correctly
- You want to grow beyond marketplace sales into your own website
TSA & COO's Starter plan at $149/month covers all bookkeeping and tax preparation for single-platform marketplace sellers. Book a free consultation to discuss your specific situation.