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Etsy doesn't withhold a dime, and that's the whole problem
At a W-2 job, taxes came out before you ever saw the money. Etsy works the opposite way: every payout lands gross and untouched, and setting aside what the IRS is owed is entirely on you. Once you cross $5,000 in a calendar year, Etsy reports your gross sales to the IRS, shipping and fees included, which is why the form always looks wrong. If your shop is genuinely a hobby, sold occasionally with no real profit motive, the IRS still wants the income reported, just without the self-employment tax or the deduction toolkit a real business gets. If you are running it like a business, meaning you track inventory, advertise, and try to turn a profit, you owe self-employment tax on that profit but you also unlock every deduction in tip two below, which is usually the better trade once sales pass a few thousand dollars a year. The 1099-K threshold does not decide which category you are in; your own pattern of activity does, and the IRS has a real test for it, regularity, profit motive, and records kept, that most sellers have never heard named out loud.
Do this today: Open a separate savings account today and move 25 to 30 percent of every Etsy payout into it the moment it hits.
