The tax side of selling online is simpler than the internet makes it sound. There are three questions: is this income, what is the profit, and when do I pay. This guide answers each for a US sole proprietor, which is what almost every reseller and freelancer is until they decide to be something else. It’s general information, not tax advice; a tax professional who knows your situation beats any calculator.
Is it income?
Selling your own used things for less than you paid is not taxable. If you bought a couch for $900 and sold it for $200, there’s no income and nothing to report, whether or not a marketplace sends you a form.
Selling as a business is taxable. The IRS looks at whether you’re doing it regularly, to make a profit, with some organization. If you’re sourcing items in order to resell them, listing every week, and tracking what you make, you have a business, even a small one, and the profit is self-employment income reported on Schedule C.
The middle ground, an occasional hobby sale at a gain, is reportable income but without the self-employment tax, and without the ability to deduct expenses. Most people who sell consistently are better off treating it as a business.
What the 1099-K is
Marketplaces and payment processors (eBay, Etsy, PayPal, Mercari, Stripe) report your gross payments to the IRS on Form 1099-K once you cross a reporting threshold. Congress has moved that threshold more than once in recent years and some states set their own, lower thresholds; check the IRS page on Form 1099-K for the figure that applies to the year you’re filing.
Two things about the form that matter more than the threshold:
- It reports gross, not profit. The number includes shipping the buyer paid, sales tax the platform collected, refunded orders and fees that never reached you. Your tax is on profit, so you reconcile the 1099-K to your records rather than paying tax on the number printed on it.
- Not getting one doesn’t mean it isn’t income. The threshold controls what the platform reports, not what you owe.
Working out the profit
Profit is gross sales minus every ordinary and necessary expense of the business. For a reseller that includes:
- Cost of goods sold: what you paid for the inventory you sold this year
- Marketplace and payment processing fees
- Shipping labels and packaging
- Mileage to source and to the post office, at the IRS standard rate
- Supplies, a scale, a printer, photo lights
- A share of your phone and internet
- Software subscriptions for listing or bookkeeping
Keep receipts. The single most valuable habit is a spreadsheet, or a bookkeeping app, updated weekly with each purchase and each sale. Reconstructing a year in April is where people give up and overpay.
Self-employment tax
An employee pays 7.65% of wages for Social Security and Medicare and the employer pays another 7.65%. When you’re self-employed you are both, so you pay 15.3%, applied to 92.35% of your net profit (the 92.35% is the IRS’s way of giving you the employer-side deduction up front). It applies once net earnings reach $400 for the year.
On $20,000 of profit:
| Step | Amount |
|---|---|
| Net earnings subject to SE tax (92.35%) | $18,470 |
| Self-employment tax (15.3%) | $2,826 |
| Half of it, deductible from income | $1,413 |
The Social Security part (12.4%) stops at the annual wage base, $184,500 for 2026; the Medicare part (2.9%) doesn’t.
Federal income tax on top
The profit, minus half the self-employment tax, minus the 20% qualified business income deduction most sole proprietors get, minus your standard deduction, is taxed at the ordinary brackets. For 2026 the standard deduction is $16,100 single and $32,200 married filing jointly, and the brackets start at 10%.
If the business is your only income, $20,000 of profit works out to roughly $2,826 of self-employment tax and very little income tax after the deductions. If it’s on top of a salary, the profit lands in whatever bracket your salary already put you in, which is where people get surprised. The freelance tax calculator takes your other income into account and prints the quarterly figure.
Quarterly estimated payments
The IRS wants tax paid as you earn it. If you expect to owe $1,000 or more for the year after withholding, you make estimated payments four times a year:
| Period | Due |
|---|---|
| 1 January to 31 March | 15 April |
| 1 April to 31 May | 15 June |
| 1 June to 31 August | 15 September |
| 1 September to 31 December | 15 January |
Miss them and there’s an underpayment penalty, which is interest, not a fine, but it adds up. The safe harbor: pay at least 100% of last year’s total tax (110% if your income was over $150,000) in equal quarterly instalments and there’s no penalty even if you owe more in April.
If you also have a W-2 job, there’s an easier route: raise your withholding on Form W-4 by the amount you’d otherwise send quarterly. The IRS treats withholding as paid evenly through the year, whenever it actually happened.
How much to set aside
A common rule for a profitable side business on top of a salary is 25% to 30% of profit for federal tax, plus your state’s rate. For a business that’s your only income, the effective rate is lower because the deductions do more work. Run your own numbers rather than trusting a rule: the calculator shows the split between self-employment tax and income tax, and the quarterly amount.
Sales tax is separate
Marketplaces collect and remit sales tax on your behalf under marketplace facilitator laws in every state that has one, so you don’t handle it on marketplace sales. If you sell through your own site, you owe sales tax in states where you have nexus, usually your home state plus any state where you pass an economic threshold. The sales tax calculator covers the rates; the sales tax guide covers the rules.
Sources
IRS Revenue Procedure 2025-32 for 2026 brackets and deductions; IRS Publication 926 for the Social Security wage base; IRS Schedule C instructions; IRS Form 1040-ES for estimated payments. Rates checked 13 September 2026.