Shipping on Etsy is a hot topic these days and there seems to be some confusion.
Here’s what I’m hearing and reading on social media.
Q: “Why am I charged 5% of the shipping cost if I don’t use Etsy’s shipping labels?”
A: In 2018 Etsy changed their fee structure from 3.5% of item cost (not including shipping) to 5% of the total cost (including shipping). One of the reasons they did so is because sellers were greatly underpricing their items and overpricing shipping in order to avoid Etsy’s fees. Even if you don’t ship through Etsy you still have to pay the fee. Think of the fee as a cost on the total price that your customer paid. Etsy does break it out into 5% item cost and 5% shipping cost in your payment account but it’s still 5% of the total. Whether you include your shipping costs in the price of your item (and use free shipping) or break it out separately it’s the same fee.
Q: “If I put the cost of shipping into the price of my item won’t I have to claim more income for taxes?”
A: No. You should have been claiming everything that Etsy paid you for as income anyway – that includes the cost of shipping. Then you take what you paid in shipping costs back out as an expense. If you charge your customers more than it costs to ship then you do make a little profit and the taxing authorities are going to want you to report it. Conversely, if you don’t charge enough then you’ll have a little bit of a loss in this category to use against other income. But if you have been reporting correctly all along there is no change here.
I hope this clears up a few of the misconceptions!