Etsy Seller Tax Guide for U.S. and Canada (2025): Avoid Fines and Keep More Profits

Selling on Etsy in Canada or the U.S.? You might wonder about e-commerce taxes. Tax confusion might have already cost you cash. In Canada, 90% of small business owners say tax rules stress them out. Many Etsy sellers also hire bookkeepers, which adds costs.

We’ll break down Etsy e-commerce taxes in Canada and the U.S. in a simple way. SAL Accounting has got your back. Stick with us to the end for easy tips to tackle your tax duties!

Quick Takeaways

• U.S. sellers pay 10%–37% federal tax on profit; Canada’s 15%–33%.
• Self-employed? U.S. sellers owe 15.3%; Canada’s 11.9% over $3,500.
• Etsy collects sales tax in most U.S. states and Canadian provinces.
• File by April 15 in the U.S. or April 30 in Canada, or face 5% monthly penalties. 
• Deduct Etsy fees and other expenses to lower your tax bill in both countries.

Do Etsy Sellers in Canada and the U.S. Pay Taxes?

Yes, they do! If you sell on Etsy, you’ve got to pay taxes based on what you earn. What you owe depends on a few things: how much you make, where you and your buyers are, what you’re selling, and if your shop’s a business or not. If you just sell here and there as a hobby, you might pay less tax. Book a free consultation with us on Bookkeeping for Etsy Sellers for more details.

What Are Etsy E-Commerce Taxes?

They’re the taxes Etsy sellers have to handle. Below, we’ll go over the main ones and what you’re responsible for:

• Income Tax: You pay this on your profit. Profit is just your total sales minus business expenses.
• Sales Tax: Some items are taxable, so you collect this from buyers. That’s sales tax.
• Self-Employment Tax: If you’re self-employed, you might pay this for things like social security.
• Local and State Tax: Depending on your state or province, you could owe extra taxes on income, fees, or your business.

What Taxes Do U.S. Sellers Pay on Etsy?

The IRS usually counts U.S. Etsy sellers as self-employed. You’ll run into a few taxes on the platform. Here’s the rundown:

1. Federal & State Income Tax

As a U.S. seller, you pay tax on your net profit. This can be anywhere from 10% to 37%, depending on your income and federal income tax bracket. The U.S. uses a progressive tax system, meaning your income is taxed at increasing rates as it falls into higher brackets. You’ve got to report all your income, with no exceptions, even if it’s just a hobby shop.

Key Point: Some states (43 plus D.C. in 2025) add their own income tax. Rates vary a lot, 0% in Florida, up to 13.3% in California for incomes over $1,000,000. 

Example: Emily sells candles on Etsy from California. She made $25,000 profit this year. Here’s her tax breakdown:

Her federal tax bracket is 12%, so:
$25,000 × 12% = $3,000 (her federal income tax with no deduction)

California’s state tax is 13.3%, so:
$25,000 × 13.3% = $3,325 (her state income tax with no deduction)

➜ Read more: “Shopify Seller Tax Guide (2025)”

2. Self-Employment Tax

As we said, Etsy sellers in the U.S. typically count as self-employed. If your profit hits over $400, you owe taxes for Medicare (2.9% of your net earnings) and Social Security (12.4% of your net earnings) per the self-employment tax rules. That’s 15.3% of your net earnings. You pay both the employer and employee shares.

🌟 Key Point: You pay Social Security tax on your income up to $168,600 (for 2025). Medicare tax? You pay that no matter what, no cap there.

Example: Emily’s profit is over $400. She owes 15.3% for self-employment tax:
$25,000 × 15.3% = $3,825 (her self-employment tax)

3. Sales Tax

Sales tax on Etsy in the U.S. runs between 4% and 10%. It depends on your state, like 8.875% in New York. Good news: Etsy collects and sends sales tax for you in many states. If they don’t, or you’ve got a “sales tax nexus” in the buyer’s state, you might need a sales tax permit and collect it yourself.

🌟 Key Point: Etsy also takes care of sales tax on digital stuff (like printables) in states that require it. No stress there!

4. Quarterly Estimated Tax Payments

If you owe $1,000 or more in taxes, the IRS wants you to pay four times a year. It saves you from a huge bill or penalties later. Pay dates are April 15, June 15, September 15, and January 15, per the quarterly estimated tax deadlines.

Example: Back to Emily. She figures she’ll owe over $1,000 this year. Her total tax is $3,000 + $3,325 + $3,825 = $10,150. She splits it into four:
$10,150 ÷ 4 = $2,537.50 each time (April 15, June 15, September 15, January 15).

Tax Type	Rate	Who Pays?
Federal Income Tax	10%–37% (progressive)	All sellers (based on income)
State Income Tax	0%–13.3% (varies by state)	Sellers in taxable states
Self-Employment Tax	15.3% (12.4% Social Security, 2.9% Medicare)	Sellers earning over $400
Sales Tax	4%–10% (varies by state)	Etsy collects in most cases
Quarterly Estimated Tax	If total federal tax owed > $1,000	Sellers meeting the threshold

➜ Read more: “Corporate Tax Deadlines in 2025”

Etsy Seller Taxes in Canada

Etsy sellers in Canada deal with taxes from the Canada Revenue Agency (CRA). You pay a few different ones. Here’s the scoop:

1. Federal & Provincial Taxes

Canadian Etsy sellers pay tax on their net profit, your revenue minus expenses. The federal rate starts at 15% for the first $55,867 of profit and climbs to 33% if you make over $235,675 (According to federal tax rates). You report all income, no matter how small.

🌟 Key Point: Your province might add its own tax on profit. Rates vary from 5.05% to 11.5% in Ontario.

Example: Emma sells handmade jewelry on Etsy from Ontario. Her revenue is $10,000, and she spends $4,000 on fees, shipping, and stuff like that. Her profit is $6,000. Here’s her tax:
Her profit’s under $55,867, so:

$6,000 × 15% = $900 (her federal income tax)

Ontario’s lowest provincial rate is 5.05%, so:

$6,000 × 5.05% = $303 (her provincial income tax)

2. CPP (Canada Pension Plan) Contributions

You pay into the Canada Pension Plan (CPP) for your retirement. Canada sees Etsy sellers as self-employed, so you cover both employee and employer parts, 11.9% of your net income. You start paying CPP if you earn over $3,500 a year on Etsy.

🌟 Key Point: The highest amount you pay for CPP is $7,684.90, according to your income up to $68,500. Earn more, pay more, up to that cap. When your profit is over $68,000, you will pay an additional 8% on your earnings up to $73,200. (2025 cap)

Example: Emma’s profit is over $3,500, so she owes CPP at 11.9%:
$6,000 × 11.9% = $714 (her CPP contribution)

Our corporate tax accountants in Toronto know the ropes. Reach out to SAL for support now!

3. GST/HST Taxes

Etsy sellers handle Goods and Services Tax (GST) and Harmonized Sales Tax (HST) in Canada. GST is 5% across the country. Some provinces mix GST with their own sales tax to make HST, which ranges between 13% and 15%, like 13% in Ontario. You add this to your prices, and buyers pay it.

🌟 Key Point: Certain provinces have their own sales tax program. For example, Quebec does its own thing with 9.975% QST (Quebec Sales Tax).

Example: Emma’s sales haven’t hit $30,000 yet, so she doesn’t have to register for GST/HST or collect it herself. Etsy usually collects the 13% HST (Ontario’s rate) for her.

Case Study: Sales Tax Misstep in Canada

Problem: A client came to us stressed out. Their Amazon.ca shop was booming, $60,000 a year, but they thought HST covered all sales taxes. Wrong. They were shipped to British Columbia and Quebec, where PST (7%) and QST (9.975%) apply too. They hadn’t registered, hadn’t collected it, and risked a $5,000 bill if audited.

What We Did: We registered them for PST in BC and QST in Quebec fast, hooked up Amazon to collect those taxes, and set them up to remit properly. 

🌟 Quick Tip: Don’t sleep on registering if you hit $30,000 in sales there.

The Result: Now they collect the right taxes, like $3 extra on a $25 sale, and send it to the provinces. They’re compliant, safe, and back to business as usual.

➜ Read more: “GST/HST Return in Canada”

4. Quarterly Installment Tax Payments

If your taxes go over $3,000 for two years straight, you pay in four chunks each year: March, June, September, and December. The CRA tells you if they want it this way.

🌟 Key Point: In Quebec, your total tax needs to be in the top $1,800 for quarterly payments.

Example: Emma’s total tax is $900 + $303 + $714 = $1,917. It’s under $3,000, so she can pay it all at once, no installments needed.

Tax Type	Rate	Who Pays?
Federal Income Tax	15%–33% (progressive)	All sellers (based on income)
Provincial Income Tax	5.05%–11.5% (varies by province)	Sellers in taxable provinces
CPP Contributions	11.9% (on net income over $3,500)	Self-employed sellers
GST/HST Taxes	5%–15% (varies by province)	Sellers registered for GST/HST (if revenue > $30,000)
Quarterly Installments	If total tax owed > $3,000 for two years	Sellers meeting the threshold

Reporting & Filing Requirements for Etsy E-Commerce Tax Returns

Etsy sellers in Canada and the U.S. count as self-employed to the CRA and IRS. That means you report your e-commerce taxes and file some forms. You’ve got deadlines to hit, or you might face penalties. Here’s what you need:

Annual Tax Return

United States: U.S. Etsy sellers file Form 1040. If your profit tops $400, you add Schedule SE for self-employment tax. You also use Schedule C for income tax. Here is the Form 1040 (2025):

Canada: Canadian Etsy sellers file T1. You attach Form T2125 for income tax and 11.9% CPP if your profit beats $3,500. Check out the form below: 

Heads Up: You report every penny in both countries; no minimum income to skip this.

➜ Read more: “How to File Your U.S. Tax Return while Living in Canada”

Sales Tax Filing

Etsy handles sales tax: calculating, collecting, and sending it off in lots of U.S. states and Canadian provinces. But sometimes you’ve got to step in:

United States: If Etsy doesn’t cover sales tax in your state, you file state returns yourself.

Canada: If you’re registered, Canadian sellers file GST34 to handle GST/HST. In Quebec, you file for QST, too.

Etsy Seller Tax Forms & Provided Reports

Besides the forms your country needs, Etsy throws in some tax stuff, too. Here’s what they give you, and you need to track your income and expenses super close to nail your taxes.

United States: If your U.S. sales top $600, Etsy sends you a 1099-K Form. It lines up with Schedule C. This form shows your earnings. You use it to report your income. Here is the form: 

Canada: Canadian sellers don’t get the 1099-K. Etsy hands you Payment Reports instead. You grab the details from there to report your income on your taxes.

🌟 Pro Tip: Write down all your sales and expenses in a spreadsheet. It keeps everything straight. Plus, you can double-check the info and file your forms way easier.

➜ Read more: “Best eCommerce Accounting Software in 2025”

Deductions to Lower Canadian and U.S. Etsy Seller Taxes

As an Etsy seller in the U.S. or Canada, you can cut your taxes with business expense deductions. These lower your tax bill big time. Here’s the breakdown for both countries.

Etsy Deductions Available in Both Canada and the U.S.

Subtract these from your net profit before figuring out taxes. It shrinks what you owe in the U.S. and Canada:

• Supplies: Tools or items you buy, like paint, a sewing machine, or scissors, count as expenses.
• Shipping: Include all shipping stuff, tape, boxes, labels, you name it.
• Etsy Fees: Don’t forget Etsy’s cuts: listing fees ($0.20 each), transaction fees (6.5% of sale price), and payment processing (3% + $0.25 per sale).
• Travel: Driving to grab supplies or drop off packages? Deduct it, 67 cents per mile in the U.S. and about 70 cents per km in Canada.
• Office: Use part of your home for your Etsy gig? Deduct a chunk of rent, utilities (like heat), or internet based on the space.
• Equipment: Big items like a camera, printer, or computer for your shop? Deduct them.
• Advertisement: Spent cash on Instagram ads, Etsy Ads, or boosting posts? Take it off your taxes.
•  Professional Help: Fees for a lawyer, accountant, or tax software to run your shop count too.

Check out the Etsy fees for 2025 in the table below:

Etsy Fee Type	United States	Canada
Listing Fee	$0.20 per listing	$0.20 per listing (~$0.27 CAD)
Transaction Fee	6.5% of total sale (item + shipping)	6.5% of total sale (item + shipping)
Payment Processing	3% + $0.25 per sale	3% + $0.25 CAD per sale
Offsite Ads Fee	15% (or 12% if over $10K/yr sales)	15% (or 12% if over $10K/yr sales)
Shipping Label Fee	Varies (e.g., USPS rates)	Varies (e.g., Canada Post rates)
Currency Conversion	N/A (USD native)	Extra fee if bank converts CAD to USD

Deductions Working Just in Canada

Canadian Etsy sellers get these extras on top of the ones above:

• Input Tax Credits (ITCs): If you’re registered for GST/HST (sales over $30,000), deduct the taxes you pay on business expenses.
• CPP Adjustment: Lower your CPP contributions with deductions if your profit is over $3,500.

Deductions Working Just in the U.S.

U.S. Etsy sellers can snag this bonus alongside the shared deductions:

• Self-Employment Tax Bonus: Use deductions to trim your self-employment tax (for profits over $400), not just income tax.

Tax-Saving Tips for U.S. and Canada Etsy Sellers in 2025

Hey, Etsy sellers in the U.S. and Canada! Want to save money on taxes in 2025? Check out these practical tips based on the latest 2025 rules. They’re easy to follow and can keep more cash in your pocket.

Keep a Good Track of Everything

Write down every expense and sale. This helps you grab all your deductions and skip penalties. Keep every receipt, jot down ad costs, and save your Etsy Payment Reports. These prove your deductions if the CRA or IRS checks.

🌟 Pro Tip: We advise our clients to have two bank accounts. One for their regular income & spending. Another one is where they save for large one-time costs, e.g., tax payments, large investments, etc.

➜ Read more: “6 E-Commerce Accounting Errors That Could Cost You Thousands”

File the Required Forms on Time

Send your taxes in by April 15 (U.S., unless adjusted for weekends or holidays) or April 30 (Canada). It keeps you free of late fees and penalties. Plus, you get time to look for savings. Miss the deadline, and you’ll face a 5% penalty per month (U.S.) or 5% plus 1% monthly (Canada), with interest tacked on.

Save for Retirement and Reduce Taxes

In the U.S., stash money in an individual 401(k) plan. It cuts your taxable income, so you pay less tax. You can save up to $23,500 in 2025. If you’re over 50, you can add more. It’s a smart way to grow your savings too.

🌟 Pro Tip: We suggest grabbing a U.S. dollar bank account at your Canadian bank and a U.S. dollar credit card. It lets you move funds to Canada without switching them to CAD. CIBC, TD, and BMO work great for this. RBC? Not so much. Our clients say it’s super slow and a hassle.

Get Expert Help

Get an expert to boost your savings and trim your Etsy taxes. An e-commerce accountant or tax pro helps you grow your shop and keep more money. They spot deductions you might miss and stop mistakes. It’s like having a tax buddy who knows the ropes!

Final Thoughts

Etsy sellers in Canada and the U.S. owe taxes based on what they earn. But knowing about deductions, Etsy rules, and filing basics can help you get along well with all complexities. This guide covers everything you need to manage taxes on Etsy without the stress. 

Need extra help with Etsy seller taxes in Canada or the U.S.? Contact us at SAL Accounting. 

We’re your go-to team for all tax stuff, including Etsy, and we’ve got your back!

Frequently Asked Questions (FAQs)