Do I Have to Pay Taxes on eBay Sales?

Tax obligations for sales made on platforms like eBay vary significantly based on the nature and volume of the sales activities. Understanding the specific circumstances of your selling can help clarify your responsibilities.

Determining Taxable Sales

Whether your eBay sales are taxable depends primarily on the distinction between selling personal items and engaging in business activity. When you sell personal items, such as old clothing, furniture, or collectibles, for less than their original purchase price, you generally do not incur a taxable gain.

However, if you acquire or create items specifically for resale, or if you regularly sell items with the intent to profit, your activity is considered a business. The Internal Revenue Service (IRS) differentiates between a hobby and a business based on factors like whether you engage in the activity for profit, the time and effort you put into it, and whether you depend on the income for your livelihood. Income derived from a business activity is generally taxable, regardless of the amount.

For reporting purposes, third-party payment networks, including those processing eBay payments, issue Form 1099-K. For the 2024 tax year, this form is issued if gross payments exceed $5,000, and for 2025, the threshold is set at $2,500. Even if you do not receive a Form 1099-K, any net income from a business activity remains taxable. Some states may also have lower reporting thresholds for payment processors.

Income Tax Obligations

If your eBay sales are a taxable activity, income tax is levied on the net profit from your sales, not the total gross sales amount. This means you can reduce your taxable income by deducting eligible business expenses.

Common deductible expenses for sellers engaged in a business include the cost of goods sold, which is the original purchase price of the items you sell. Other deductible expenses can include eBay selling fees, payment processing fees from services like PayPal, and shipping costs. Packaging materials, labels, and other supplies necessary for conducting your sales are also typically deductible. If you use a portion of your home exclusively and regularly for your business, you may also be able to deduct certain home office expenses.

Sellers operating as a business are generally subject to self-employment tax in addition to income tax. This tax covers Social Security and Medicare contributions, similar to payroll taxes paid by traditional employees and employers. The self-employment tax rate is 15.3%, consisting of a 12.4% Social Security tax and a 2.9% Medicare tax, applied to 92.35% of your net earnings from self-employment. For 2025, the Social Security portion applies to earnings up to $176,100, while the Medicare tax applies to all net earnings. Since there is no employer to withhold these taxes, business sellers often need to pay estimated taxes quarterly throughout the year if they expect to owe a certain amount of tax, typically $1,000 or more.

Sales Tax Obligations

Separate from income tax, sales tax is another consideration for online sellers. In most states, eBay operates under “marketplace facilitator” laws, which simplify sales tax collection for sellers. Under these laws, eBay is generally responsible for calculating, collecting, and remitting sales tax on behalf of sellers for transactions conducted on its platform.

There are limited scenarios where a seller might still be responsible for sales tax collection and remittance. This could occur for sales made outside the eBay platform, such as through a personal website. It might also apply in specific cases where marketplace facilitator laws do not cover particular types of items or states. Additionally, if a seller establishes a significant presence, known as “nexus,” in a state where eBay is not collecting sales tax on their behalf, they might have their own sales tax obligations.

Sales tax is distinct from income tax; it is a tax on consumption collected from the buyer and remitted to the state. Even with marketplace facilitator laws, sellers should be aware of their specific state’s rules, especially if they sell through multiple channels or directly to customers.

Record Keeping and Reporting

Maintaining accurate records is important for all sellers, regardless of their sales volume or tax obligations. Detailed records simplify tax preparation and provide documentation in case of an audit. Essential records to keep include receipts for items purchased for resale, which help determine your cost of goods sold.

You should also retain records of all sales, which can be found in eBay sales reports and individual transaction details. Proof of shipping costs, along with records of all other business expenses like eBay fees, packaging supplies, and any other operational costs, are also important. It is also advisable to keep bank statements and other financial documents related to your sales activities.

Several forms are relevant for reporting income to the IRS. If your gross payments meet the threshold, payment processors will issue Form 1099-K, which reports the total gross amount of payments you received. This form helps the IRS track income from third-party payment networks. Business sellers operating as sole proprietors typically report their income and expenses on Schedule C (Form 1040), “Profit or Loss from Business.” If your selling activity is considered a hobby, any income would generally be reported on Schedule 1 (Form 1040), “Additional Income and Adjustments to Income,” though associated expenses are typically not deductible after recent tax law changes. These forms, along with your diligently kept records, are then used to prepare your annual federal income tax return.