Handmade Seller Taxes in 2026: The 1099-K Rules

For tax years 2024, 2025 and 2026, a marketplace or payment app only has to send you a Form 1099-K if your payments exceed both $20,000 and 200 transactions. The much-discussed $600 threshold never took effect and has been repealed retroactively. What has not changed at all: your income is taxable whether or not a form arrives.

That second sentence is the one that matters. The threshold decides who mails you a piece of paper. It does not decide what you owe. A maker with $4,000 in sales and no 1099-K has exactly the same reporting obligation as one with $40,000 and a form.

What is the 1099-K threshold now?

$20,000 in gross payments and more than 200 transactions. Both conditions have to be met. The IRS states it directly on its Understanding your Form 1099-K page: third party settlement organizations are required to report payments "when the total amount of payments you receive for goods or services through the platform exceeds $20,000 in more than 200 transactions."

This applies to tax year 2024, 2025 and 2026. It is not a temporary delay this time. The One Big Beautiful Bill Act, signed in July 2025, amended the underlying statute back to the pre-2021 threshold and made the change retroactive, as the IRS explains in its FAQ on the 1099-K threshold under the OBBB.

What happened to the $5,000 and $600 thresholds?

They were a transition schedule that got overtaken. The IRS had planned a phase-down of more than $5,000 for 2024, more than $2,500 for 2025, and more than $600 from 2026. That guidance was formally obsoleted in January 2026 once the statute changed. If you have been dreading the $600 rule for four years, you can stop.

Two further details worth knowing. Payment card transactions have no threshold at all, so card payments can generate a 1099-K at any amount; only the third-party network side carries the $20,000 and 200 test. And if you pay contractors - a photographer, a bookkeeper, an assistant - the 1099-NEC filing threshold rose from $600 to $2,000 for payments in tax years beginning after 2025.

Are you a business or a hobby?

This is the question that actually determines your tax bill, and most makers underrate it. The difference is stark:

• Business. Report on Schedule C. Deduct your materials, tools, packaging, shipping, fees, workshop space and mileage against your income. Pay self-employment tax on the net.
• Hobby. Report the income on Schedule 1 (Form 1040), line 8j. Deduct nothing. Your expenses are miscellaneous itemized deductions, and those have been disallowed since 2018 - a suspension that the 2025 legislation made permanent rather than letting it expire.

A hobby seller with $8,000 of sales and $6,000 of materials is taxed on $8,000. The same activity treated as a business is taxed on $2,000. The classification is not a preference you tick, though. It turns on whether you are genuinely trying to make a profit.

The test is in the Treasury regulations at 26 CFR 1.183-2(b), which lists nine factors: how businesslike your conduct is, your expertise or that of your advisors, the time and effort you put in, whether the assets may appreciate, your success in similar activities, your history of income or losses, the amount of any occasional profits, your financial status, and any elements of personal pleasure or recreation. The IRS also publishes a plain-English version of the same test.

Note that enjoying your craft does not make it a hobby. Plenty of profitable businesses are enjoyable. What matters is the pattern of behaviour: separate bank account, real records, actual pricing, changes made when something loses money. If you priced your work properly using something like our pricing formula for handmade work, you have already generated evidence of businesslike conduct.

When do you owe self-employment tax?

When your net earnings from self-employment reach $400 or more, per the IRS self-employment tax page. That is $400 of net profit, not $400 of sales. The rate is 15.3% total, made up of 12.4% Social Security and 2.9% Medicare, with an additional 0.9% Medicare tax above certain filing-status thresholds.

You can deduct the employer-equivalent portion when calculating adjusted gross income, so the effective bite is smaller than 15.3% of profit. But $400 is a low bar, and it catches a lot of side-hustle makers who assumed a small operation was invisible.

Do you need to pay quarterly?

Generally yes, if you expect to owe $1,000 or more in tax when you file. The IRS estimated taxes page sets that threshold, with payments made using Form 1040-ES. The safe harbour is paying at least 90% of the current year’s tax or 100% of the prior year’s tax, whichever is smaller.

Payments are due in April, June, September and January of the following year, rolling to the next business day when a due date falls on a weekend or holiday. For makers, this is genuinely awkward, because income is heavily concentrated in the fourth quarter while the payment schedule is not. Setting aside a percentage of every sale as it lands is far less painful than finding a lump sum in January.

What is new for tax year 2026?

One change that is small in dollars and genuinely relevant to small sellers. The qualified business income deduction under section 199A was rewritten effective for tax years beginning after 31 December 2025, so 2026 is the first year it applies. It now includes a minimum deduction: if your aggregate qualified business income across all active qualified trades or businesses is at least $1,000, your deduction is the greater of the normal calculation or $400. The phase-in range was also widened, and the provision no longer expires.

In practice, a maker with modest profit who previously got a trivial QBI deduction now has a floor. Worth knowing that the IRS newsroom page on QBI has not been updated for this and still describes the old expiry, so check the statute or ask your preparer rather than relying on that page.

What about sales tax?

For marketplace sales, mostly handled for you. Every US state that levies a sales tax now has marketplace facilitator rules requiring the marketplace to collect and remit on the seller’s behalf. Five states have no statewide sales tax at all: Alaska, Delaware, Montana, New Hampshire and Oregon, though some Alaskan municipalities levy local tax.

The catch that trips makers up: facilitator relief covers sales through the marketplace. Sales you make anywhere else are yours to handle - your own website, a craft fair, a market stall, direct sales through Instagram DMs. Many states also still require you to register and file returns reporting marketplace sales even when the platform remitted the tax. Check your own state’s revenue department rather than assuming.

What should you actually do?

1. Open a separate bank account for the business. The single cheapest thing you can do for both your bookkeeping and your business-versus-hobby position.
2. Track every expense from day one. Materials, tools, packaging, postage, marketplace fees, software, workshop rent, mileage to the post office. Unrecorded expenses are money you hand over voluntarily.
3. Keep receipts for inventory and equipment separately. They are treated differently from consumables.
4. Set aside a fixed percentage of every sale. Pick a number with your preparer and move it to a separate account the day the payout lands.
5. Do not wait for a 1099-K to report income. The threshold is a reporting rule for platforms, not an exemption for you.
6. Get a preparer once you are past a few thousand dollars in profit. A CPA or enrolled agent who understands small manufacturing usually saves more than they cost in the first year.

The 1099-K threshold decides who sends you a form. It has never decided what you owe.

Everything above is US federal law and does not cover sellers outside the US, where the rules differ entirely. For the operational side of running a maker business, see our Q4 prep plan, the shipping guide for handmade sellers, and the 2026 marketplace fee comparison, since marketplace fees are a deductible business expense and worth tracking accurately. More is in our seller playbooks.