Amazon tax central: A guide to Amazon seller taxes in 2024

Until 2018, most online sellers didn’t have to collect sales tax for items they sold to customers out of their home state. After the South Dakota Supreme Court v. Wayfair case was settled, however, that all changed. Marketplace laws were enacted, making large online marketplaces like Amazon responsible for collecting and filing sales tax for the sellers using these platforms. 

While there are a lot of benefits to using Fulfillment by Amazon, their seller tax service isn’t free. Amazon charges 2.9% per transaction to calculate and remit these taxes. Read on to learn about how collect sales tax on Amazon and whether this will apply to your store. 

What types of taxes do Amazon sellers need to pay?

Amazon sellers typically need to pay the following types of taxes:

Income tax

You must report and pay income tax on your profits from selling on Amazon. The amount will vary depending on your total income and tax bracket. 

State and local sales tax

In most U.S. states, Amazon acts as a marketplace facilitator, handling the calculation, collection, and remittance of sales tax on behalf of third-party sellers. This simplifies the process for sellers, as you no longer need to worry about managing sales tax compliance yourself. 

Customers will see a single, combined sales tax amount at checkout, but Amazon's system allocates the appropriate taxes to the relevant state and local jurisdictions based on the buyer's location and the product's taxability.

You may also be responsible for other tax obligations, such as: 

Self-employment tax

If you operate as a sole proprietor or partnership, you'll need to pay self-employment taxes to contribute to Social Security and Medicare.

Estimated taxes

Many Amazon sellers are required to make quarterly estimated tax payments to cover their income and self-employment tax liabilities throughout the year.

International taxes

If you expand your Amazon business internationally, be prepared for additional taxes, like Value Added Tax (VAT) in many European countries.

Local business taxes

You might also face local business taxes or licensing fees, depending on your location.

Sales tax considerations for Amazon sellers

Generally, if you're selling physical goods on Amazon, you don’t need to calculate, add, or collect sales tax yourself for these sales. Amazon will do it for you due to Marketplace Facilitator laws now in place in most states. However, even if Amazon handles sales tax, you should understand your potential tax and reporting obligations.

Sales tax nexus

A sales tax nexus occurs when an online retailer has a significant enough presence in a state that they are required to collect sales tax. This is defined in several ways, including having stores, warehouses, and employees within a state, or it can be based on meeting a threshold of sales — an “economic nexus threshold.”

While the sales tax nexus is still relevant for general business operations, it doesn’t typically affect your sales tax collection responsibilities on Amazon, since it will collect the taxes on your behalf. However, as a seller, you may still have reporting requirements, income tax obligations, and sales through non-Amazon channels to consider.

If you use FBA, you may have a tax nexus in any or all of the following locations where Amazon has corporate offices or warehouses:

• Alabama
• Arizona
• Arkansas
• California
• Colorado
• Connecticut
• Delaware
• Florida
• Georgia
• Idaho
• Illinois
• Indiana
• Iowa
• Kansas
• Kentucky
• Louisiana
• Maryland
• Massachusetts
• Michigan
• Minnesota
• Mississippi
• Missouri
• Nebraska
• Nevada
• New Hampshire
• New Jersey
• New Mexico
• New York
• North Carolina
• North Dakota
• Ohio
• Oklahoma
• Oregon
• Pennsylvania
• Rhode Island
• South Carolina
• South Dakota
• Tennessee
• Texas
• Utah
• Virginia
• Washington
• Washington D.C.
• Wisconsin

Amazon will handle the collection and payment of sales tax for these states, but it’s important to double-check that their system is set up correctly in regard to your store. If you sell items that may not be taxed in some areas, Amazon may still charge sales tax if you don’t set up product information correctly. 

Every state that has sales tax has different rules regarding tax licenses or permits. If you have an economic nexus in a state, you need to make sure you’ve applied for all of the required licenses or permits before you start selling. 

Product taxability

Product taxability determines whether or not sales tax is collected when someone buys something. Some products aren’t taxed or are taxed at a lower rate depending on where they’re purchased. Some states have no sales tax at all, so whenever someone buys something in that state, they don’t have to pay sales tax. In other states, certain categories of goods, usually things like food, clothing, and other essentials, are taxed at a lower rate.   

Amazon will collect and remit the proper amount of tax on items sold through its marketplace, but there is a way to set individual tax rates for certain categories of goods in certain states. It’s worth double-checking these settings if you sell items that are potentially taxed differently.

There are some scenarios where you don’t need to collect sales tax, including if you’re a reseller selling to other businesses. As a reseller, you don’t need to collect sales tax because the final seller will collect it when they sell the item.

How to collect sales tax on Amazon

The benefit of being able to sell your items through a national marketplace like Amazon is that you have the opportunity to grow your customer base. But that means having to collect and pay sales tax in many different states. Luckily, Amazon does much of the work for you by collecting and remitting the proper sales tax on your behalf. 

To set up internet sales tax collection in your Amazon Seller account, follow these steps:

Step 1. Determine economic nexus

Identify the states where you have economic nexus, which may require you to collect sales tax. This typically depends on your sales volume or the number of transactions in those states.

Step 2: Apply for tax permits if necessary 

In most states, Amazon will collect and remit sales tax on behalf of sellers due to Marketplace Facilitator laws. However you may still need to register for permits in some states, especially for reporting purposes. 

Step 3: Set up your tax codes for your products

Configure tax codes for your products in your Amazon Seller Central account. This is especially important if you sell goods that aren’t taxed or are taxed at lower rates.

Step 4: Verify tax collection information 

Check that all of the tax collection information in your Amazon Seller Central account is correct. You’re still responsible for following all laws and regulations, even if Amazon collects and remits taxes for you.

Step 5: Check reports

Check sales tax reports from Amazon to ensure taxes have been paid properly.

Step 6: File necessary tax returns

Ensure all required tax returns and reports are filed on time, and settle any outstanding tax payments promptly.

Don’t forget to update any information that changes over time. If your sales increase by a lot, some states might require you to remit taxes more frequently. Amazon will do this for you if you update your unique circumstances in your profile.

How to file Amazon FBA taxes

Just because Amazon handles sales tax on your behalf doesn’t mean they take care of any income tax your business owes. You’ll need to access to several small business tax forms, including your sales tax figures, your 1099-K tax form, and a 1040 Schedule-C when you file your income taxes. 

Sales tax

If you sell items at a retail establishment or through your own website, you’ll need to collect and remit sales tax on those items. Most point-of-sale systems will have these tax amounts built in, but you can also use a sales tax calculator to ensure you’re charging the right amount.

Even though Amazon takes care of paying sales tax on your behalf, you’ll still need to report it on your income tax return. You can find Amazon seller tax forms in your Seller Central account. 

• Navigate to the “Reports” section and find the Tax Document Library
• Look for the “Sales Tax Reports” section and click the button that says “Generate Tax Report”
• You can choose from 1 of 3 reports: the Sales Tax Calculation Report is for the sales tax that you are responsible for paying, the Marketplace Tax Collection Report covers all of the taxes that Amazon has collected and remitted for you, and the Combined Sales Tax Report covers both.

With that information, you can file and pay taxes according to the proper schedule.

1099-K tax forms

IRS form 1099-K is used to report payment card and third-party network transactions. Individual online sellers don’t need to complete a 1099-K themselves. Amazon will handle this and send the form to both the IRS and the sellers if the sellers meet specific criteria.

Starting with the 2024 tax year (for forms issued in early 2025), sellers will receive the 1099-K if their sales have reached $5,000 or more. This is part of a phased approach by the IRS, which has delayed the implementation of the $600 threshold originally mandated by the American Rescue Plan Act. The timeline for further lowering the threshold has not been specified. Keep in mind that while the reporting threshold is changing, all taxable income still needs to be reported, regardless of whether a 1099-K is received or not.

Amazon requires professional and individual sellers with more than 50 yearly transactions to also provide their tax information, even if they don't meet the above criteria. Otherwise they may risk losing seller status. Though this isn’t a requirement from the IRS, Amazon does this to ensure they have everyone’s tax information to comply with all IRS regulations.

1040 Schedule-C

If you’re operating as a sole proprietorship or the sole owner of an LLC in your state, and you have a business license, you’ll need to file Schedule C or Form 1040. Generally speaking, you don’t need a business license to become a seller on Amazon. However, some states will require you to get one. The criteria for getting a business license differ by state, but if you have employees, inventories, and offices in multiple states, you’ll probably need one. 

If you’re just running a one-person operation out of your home, you likely won’t need one. It’s crucial to check your state’s requirements to avoid any mistakes. Remember that you’ll need to report income to the IRS whether you have a business license or not. 

Deductions for Amazon sellers

Amazon sellers can claim deductibles on things like home office expenses and education costs. Make sure to keep all receipts that can be related to your online activities. Here are some important deductions that may come in handy for sellers:

• Amount you paid for goods sold, including the wholesale price or the cost of manufacturing
• Shipping costs, including supplies and fees 
• Home office expenses, including computers, office furniture, office supplies
• Amazon Seller fees
• Mileage
• Donations
• Subscriptions
• Education related to e-commerce and online business
• Accounting, tax, POS, and inventory software
• Advertising, including digital ads, business cards, print materials
• Salary and benefit costs
• Consultant fees, including attorneys, accountants, copywriters, and web designers

It’s always a good idea to take advantage of tax breaks for small businesses so you can keep your company growing.

Tips for filing Amazon seller taxes

Between managing inventory and keeping track of sales, being an Amazon seller can be a demanding balancing act. Use these tips to help navigate tax time a little easier.

1. Keep accurate records all year

Keep thorough records of all sales for income tax purposes. Amazon provides reports that can help with this, but you should maintain your own detailed and accurate records. 

2. Understand your tax obligations

While Amazon handles most sales tax collection, you should be aware of your nexus and ensure you’re complying with sales tax laws in those states. You should also understand any tax obligations for your non-Amazon sales channels. 

3. Claim deductions and expenses

Keep track of your deductible business expenses, such as Amazon seller fees. The more you can claim, the more you can potentially reduce your taxable income and lower your overall tax liability. 

4. Use accounting software

Consider using accounting software for e-commerce sellers to categorize your income and expenses and streamline tax calculation and filing. QuickBooks, for example, connects to Amazon to automatically calculate sales and sales tax.  

5. Consult a tax pro

Sales tax regulations are complex and change frequently. Consider consulting a tax professional or bookkeeper to understand your specific obligations and ensure compliance across different states.

Run your business with confidence

As complex as managing Amazon internet taxes sounds, there’s business and accounting software to help you do the necessary work of tracking everything from your deductibles to your Amazon seller tax information. Learning to file small business taxes is easier when you have a system consolidating all the data you need.