Selling on Amazon FBA creates tax obligations at three levels: sales tax, federal income tax, and self-employment tax. Amazon FBA taxes are simpler than they used to be on the sales tax side, because Amazon now collects and remits sales tax in every state that imposes one. The parts that catch new sellers off guard are the 15.3% self-employment tax on your net profit and the possibility of owing state income tax in every state where Amazon stores your inventory.
Sales Tax: Amazon Handles Most of It
Every state with a sales tax has a marketplace facilitator law, and those laws make Amazon the legal seller of record for tax purposes on your FBA sales. Amazon calculates the tax at checkout, collects it from the buyer, and remits it to the state directly.1Amazon. Marketplace Tax Collection For most sellers, this covers the vast majority of transactions and eliminates the day-to-day work of managing sales tax on Amazon orders.
A few gaps remain. Some states exclude certain local taxes from marketplace facilitator obligations. Colorado’s home-rule cities may not be covered if the city hasn’t adopted its own facilitator ordinance, and Illinois excludes origin-based sales tax on third-party sales.1Amazon. Marketplace Tax Collection Sellers dealing in digital products, prepared food, or specialized categories should check the specific rules in their high-volume states, because certain categories can fall outside facilitator coverage.
Even where Amazon collects on your behalf, you may still need to file sales tax returns in states where you already hold a sales tax permit. The facilitator law shifts the collection burden, not necessarily the filing burden. Some states require registered sellers to submit a return showing the marketplace collected the tax. Missing those returns can trigger penalties even when you owe nothing, and in some states the penalty for a missed zero-dollar return starts at $50.
When You Still Need Your Own Sales Tax Permit
If you sell exclusively through Amazon and your products fall under marketplace facilitator coverage in every state, your direct sales tax obligations are minimal. But many FBA sellers also sell through their own website, at trade shows, or on platforms that don’t qualify as marketplace facilitators. In those situations, you need a sales tax permit in each state where you have nexus, meaning a legal connection strong enough to trigger a collection duty.
Two things create nexus. Economic nexus kicks in when your sales into a state cross a threshold, usually $100,000 in annual sales; more than a dozen states have dropped the older 200-transaction prong entirely. Physical nexus kicks in when you have property in a state, and for FBA sellers that includes inventory Amazon has moved into a fulfillment center there, sometimes without your direct control.
Registration is handled through each state’s Department of Revenue website. You’ll typically need your federal Employer Identification Number, obtained through IRS Form SS-4, your legal business name, business structure, the date you first created nexus in that state, and your NAICS code.2Internal Revenue Service. About Form SS-4, Application for Employer Identification Number (EIN) Most states don’t charge for a sales tax permit; a handful charge fees up to $100. The state then assigns a filing frequency based on your sales volume, ranging from monthly for high-volume sellers to annually for small ones.
Resale Certificates on Inventory Purchases
When you buy inventory to resell, you shouldn’t be paying sales tax on those purchases. A resale certificate tells the supplier the goods are destined for resale, so the tax gets collected later from the end customer instead. To use one, you generally need an active sales tax permit in the state where the purchase occurs. Some states accept the Streamlined Sales Tax Exemption Certificate or the Multistate Tax Commission’s Uniform Certificate; others require their own form. Keep copies of everything you issue. If an auditor questions a tax-free purchase and you can’t produce the paperwork, you’ll owe the tax plus interest.
Federal Income Tax and the 1099-K
Every dollar of profit you earn through FBA is subject to federal income tax. Amazon is classified as a third-party settlement organization and reports your gross sales to the IRS on Form 1099-K under 26 U.S.C. ยง 6050W.3Office of the Law Revision Counsel. 26 USC 6050W – Returns Relating to Payments Made in Settlement of Payment Card and Third Party Network Transactions
The reporting threshold has bounced around for years. It’s now settled: the One, Big, Beautiful Bill retroactively reinstated the original threshold, so Amazon only files a 1099-K for sellers who exceed $20,000 in gross payments and 200 transactions in a calendar year.4Internal Revenue Service. IRS Issues FAQs on Form 1099-K Threshold Under the One, Big, Beautiful Bill If you fall below that threshold, you won’t receive a form, but you still owe tax on the income and must report it.
Sole proprietors report FBA income on Schedule C of Form 1040.5Internal Revenue Service. About Schedule C (Form 1040), Profit or Loss from Business (Sole Proprietorship) If you operate through a corporation, you’d use Form 1120 instead.6Internal Revenue Service. About Form 1120, U.S. Corporation Income Tax Return The important thing to understand about the 1099-K is that it reports gross sales, not profit. Amazon fees, shipping, returns, and cost of goods sold all reduce your taxable income, but only if you track and deduct them.
Deductions That Shrink the Bill
The gap between gross sales and taxable profit can be enormous. Amazon’s referral fees alone typically run 8% to 15% of each sale, and FBA fulfillment fees add more on top. All of these are deductible business expenses. Common categories include:
- Cost of goods sold: what you paid for the inventory you sold during the year, including purchase price, inbound shipping, and prep costs.
- Amazon fees: referral fees, FBA fulfillment fees, storage fees, and seller account subscription fees.
- Shipping and supplies: outbound shipping you pay directly, packaging materials, labels, and poly bags.
- Software and tools: inventory management software, repricing tools, accounting subscriptions, and tax filing services.
- Advertising: Amazon PPC campaigns and any off-platform marketing.
- Home office: a proportional share of rent, utilities, and internet if you use a dedicated space for the business.
Cost of goods sold is usually the largest deduction and deserves the most attention. The IRS requires inventory-based businesses to track beginning and ending inventory and choose an accounting method. FIFO (first-in, first-out) is common; so is specific identification, where each sale is matched to its actual purchase cost. Small businesses with average annual gross receipts of $26 million or less can elect simplified inventory accounting, treating inventory as non-incidental materials and supplies.7Internal Revenue Service. Publication 538 – Accounting Periods and Methods Most FBA sellers qualify, but you still need organized purchase records to calculate the deduction.
Self-Employment Tax: The Surprise
This is the tax that blindsides new sellers. If you operate as a sole proprietor or single-member LLC, your net FBA profit is subject to self-employment tax on top of income tax. Self-employment tax covers the Social Security and Medicare contributions an employer would normally split with you. Since you’re both employer and employee, you pay both halves.
The combined rate is 15.3%: 12.4% for Social Security on net earnings up to $184,500 in 2026, plus 2.9% for Medicare on all net earnings with no cap.8Social Security Administration. Contribution and Benefit Base If your net self-employment income exceeds $200,000 (or $250,000 for married filing jointly), an additional 0.9% Medicare surtax applies to the excess. You calculate the tax on Schedule SE and can deduct half of it when figuring your adjusted gross income, which softens the blow but doesn’t eliminate it.
On $50,000 of net FBA profit, self-employment tax alone comes to roughly $7,065 before you get to income tax. Sellers who’ve only ever earned W-2 wages are used to seeing these amounts split with an employer and withheld from paychecks. When the full bill arrives on your return, it can be a shock. This is one of the main reasons FBA sellers eventually consider forming an S-corporation, which can reduce self-employment tax exposure on a portion of the business income.
Quarterly Estimated Tax Payments
FBA income doesn’t have taxes withheld like a paycheck, so you’re responsible for paying as you go. If you expect to owe $1,000 or more in combined income and self-employment tax after any withholding from other jobs, the IRS requires quarterly estimated payments.9Internal Revenue Service. 2026 Form 1040-ES
The 2026 due dates are April 15, June 15, September 15, and January 15, 2027. You can skip the January payment if you file your full return and pay the balance by February 1, 2027.9Internal Revenue Service. 2026 Form 1040-ES To avoid an underpayment penalty, your total estimated payments plus any withholding must equal at least the lesser of 90% of your 2026 tax or 100% of your 2025 tax. If your 2025 adjusted gross income exceeded $150,000, that safe harbor rises to 110% of your prior-year tax.
The penalty itself isn’t devastating; it functions like interest charged on each late installment from its due date until paid. The bigger risk is cash flow. Sellers who skip estimated payments all year face a single large bill in April, often right after a strong Q4 when inventory costs ran high and the profit wasn’t set aside.
State Income Tax Where Your Inventory Sits
Sales tax gets most of the attention, but state income tax is arguably the harder problem. Federal law (Public Law 86-272) generally protects a business from state income tax if its only activity in a state is soliciting orders for tangible goods, with those orders approved and shipped from outside the state. Storing inventory in the state goes well beyond solicitation.
The Multistate Tax Commission has stated that when a marketplace facilitator holds a seller’s products at fulfillment centers in various states, that inventory defeats the seller’s PL 86-272 protection in those states.10Multistate Tax Commission. Statement on PL 86-272 Owning or consigning stock in a state warehouse is specifically listed as an unprotected activity. Because Amazon can place your inventory in fulfillment centers across the country without your direct say, you could theoretically owe income tax in a dozen or more states.
Enforcement varies in practice. Not every state aggressively pursues small FBA sellers, and some states have no income tax at all. But the legal exposure is real and growing as states get more sophisticated about tracking warehouse-based nexus. If your business is profitable enough that multistate income tax filings would be material, this is worth discussing with a tax professional who works in this area.
Catching Up If You’re Behind
If you’ve been selling through FBA for years without registering or filing in states where you had nexus, most states offer a voluntary disclosure agreement that limits your exposure. A VDA typically gives you a limited lookback period (usually three to four years instead of the full period of noncompliance) and a waiver of penalties. You still owe the tax plus interest for the lookback period, but avoiding older liabilities and penalties can cut the total bill substantially.
To qualify, you generally can’t already be under audit or have been contacted by the state about the liability. Many states let you remain anonymous through a representative until the agreement is finalized, and the process usually involves submitting a spreadsheet of gross sales and tax due for the lookback window rather than filing individual back returns. Once the state initiates contact with you, the door to voluntary disclosure closes and both the penalty waiver and the lookback limitation are off the table.