UPDATE: On November 21, 2023, the Internal Revenue Service announced a delay for the implementation of the $600 gross sales 1099-K reporting threshold for online marketplaces, which was set to take effect for the 2023 tax year (2024 tax filing season). Therefore, for the 2023 tax year the IRS requires that we issue 1099-Ks for sellers with over $20,000 in completed gross sales AND over 200 transactions on any third-party marketplace. For the 2024 tax year (2025 tax filing season), the 1099-K reporting threshold has not been finalized, but the IRS announced that it is planning for a $5,000 threshold to phase in implementation of the $600 gross sales 1099-K reporting law.
Selling goods online is a great way to put more money in your wallet. But dealing with tax paperwork can be a little overwhelming. Rest assured, we’re here to help sellers with some income tax information to ensure you are well prepared for tax season and to make the tax filing process go smoothly. Remember, for tax advice for your situation, consult with a certified tax professional.
Marketplaces like Mercari are required to collect W-9 identification information from sellers who meet (or are anticipated to meet) the Federal filing threshold during the calendar year. This W-9 information is necessary to ensure timely and accurate filing of Form 1099-K with the Internal Revenue Service. This does not necessarily mean that you will owe income taxes to the IRS relating to these sales at the end of the year.
Whether you are a casual seller, a hobbyist, a flipper or small business, it’s the gains from your online sales that are generally subject to income taxes. It’s common for Mercari sellers to sell items for less than originally paid. So in these cases, you may not have to pay income tax on sales where items are sold for less than they were originally paid for. It is important for you to retain your purchase records to determine your total costs that may reduce your taxable income. For example, if you sell a bobblehead that you bought for $50 three years ago, and sell it for $30, you may not owe tax on the $30 item despite receiving a 1099-K detailing that sale. Remember, the 1099-K reports the unadjusted gross amount of a sale and not necessarily the amount that would be subject to income tax.
For some sellers that engage in online sales regularly, you may be eligible to deduct certain costs from your gross sales amounts on your tax return. For more information about income, costs, expenses and hobby versus business income considerations, additional resources are available at the end of the article.
Should you be subject to income tax on your Mercari sales, the tax rate that your online sales income may be subject to depends on your unique tax situation. Depending on whether you are an individual, business, or hobbyist, you may be eligible to claim certain deductions, exemptions and/or exclusions for your sales income. Tax rate brackets are regularly updated by the IRS. Tax service software can help prepare your return and determine your taxable income, tax rate and total tax for you by having you answer simple questions about your online sales.
The IRS requires marketplaces like Mercari to submit a Form 1099-K for sellers who gross over a certain amount in sales in a calendar year. The Form 1099-K will be provided to applicable sellers no later than January 31 for the preceding year. You can also access your Form 1099-K form, if applicable, by logging in to your Mercari.com account, clicking on Account Settings > Tax Center. Even if your Mercari gross sales total doesn’t meet the 1099-K reporting requirements, if you sell goods online, you will still need to determine the taxable impact, if any, of your gross sales when filing your taxes. Learn more at the IRS Gig Economy Tax Center.
Since Form 1099-K reports your unadjusted gross sales and may include various transaction components, keeping good records and receipts is important. You should keep records such as bank statements, receipts, invoices and other documents to help determine your tax liability, if any. You can scan and save your records electronically or keep hard copies. If you are unsure how many Form 1099-Ks you will receive, you may want to wait to prepare your tax returns until after January 31, which is the date by which you should receive your Mercari 1099-K forms. If you sell as a hobbyist, casual seller, business, etc. the form you use to report your sales, and potential income from Mercari sales, depends on your specific filing situation.
Your W-9 information can be updated at any time in your Mercari.com account by logging in to Mercari.com and going to Profile > Account Settings > Tax Center. If you change your name, move to a new address or need to update your tax identification information, be sure to update your information in your account so that we have the proper information on file for tax reporting time. You have until January 7 following each calendar year to update your information for your Form 1099-K document for the preceding year. Please note that your updated information must be accepted by Mercari by January 7 for it to be applied to the preceding year.
Since it’s difficult to know if you will owe taxes until you actually start to input your tax information, it’s a good idea to save some of your income from your online sales in case you have a tax liability to cover when you file your income taxes. As tax brackets vary based on income levels and other facts and circumstances, you can estimate a percentage of your online sales as a ballpark to save so that you are always prepared for the tax filing deadline.
The general rule is that you need to pay your taxes as you earn income so depending on your tax situation and volume of online sales, you may want to consider making quarterly estimated payments to ensure that you have paid enough come tax filing time. If not, you could encounter penalties for underpayment. Make sure you review both federal and your individual state taxing authority estimated payment requirements. You should consult your tax advisor if you need assistance with estimating your payments.
If you file a federal income tax return, you may also need to file a state income tax return too. The individual state taxing authorities have their own regulations so be sure to familiarize yourself with your state’s requirements. There are currently 9 states that do not require individual income tax filing including Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. If you file a business return, please consult with a tax advisor on the corporate income tax filing requirements in your state.
You can view your gross sales by logging in to Mercari.com and going to Account > Seller Dashboard > Sales Report. And, at the end of each year, you can also download your gross sales report for the relevant year to use for your tax records and locate additional, potentially useful information.
There are different types of taxes and the same item can be subject to tax multiple times by different parties at various points throughout the product life cycle. Sales tax is a tax that is added on to the cost of an item when it is sold and is paid by the buyer. If an item is resold again, sales tax may be charged for the secondary sale and the seller may be entitled to a sales tax refund on the first sale. You can learn more about sales tax in our Sales Tax Policy. Income tax is a tax that sellers may have to pay, based on taxable gains (and other relevant impactors) from the sale of goods online.
We recommend that if you have questions about any tax reporting requirements, you should visit IRS.gov, or consult with your tax advisor or accountant. Visit IRS.gov for additional information on Form W-9, Form 1099-K, General FAQs on new payment card reporting requirements, IRS Gig Economy Tax Center, Business Expenses, Tax Guide for Small Business, and Hobby v. Business Income. There are also many in person tax service providers, such as H&R Block, as well as self-service online tax filing software such as IRS.gov Free File or TurboTax to help you at tax time. Be sure to consult with a certified tax preparer, such as an authorized agent, CPA, or tax attorney.
Note: Certain information for this article was pulled from IRS.gov in December 2021 and is subject to change at any time. Consult your certified tax professional for the most up to date information.
Updated: 11/30/2023Added: 01/04/2022