Are Amazon FBA reimbursements taxable? How to account for FBA reimbursements

A sale happens when a customer buys a unit. A reimbursement happens when Amazon pays you for a unit it lost or damaged. You never sold that unit, so it should not appear in sales, and it should not be counted in your sales tax or marketplace sales totals.

The reimbursement replaces part or all of the cost of inventory you no longer have. So the accounting always has two halves:

• The inventory half. Remove the lost or damaged units from inventory at their cost, including inbound freight and duties if that is how you value inventory.
• The reimbursement half. Record the cash Amazon pays you in a reimbursement account, not sales.

If you book only the reimbursement and leave the units in inventory, your inventory is overstated. If you book the reimbursement as a sale, your revenue and margin are overstated.

For casualty and theft losses of inventory, IRS Publication 547 describes two ways to deduct the loss:

• Through cost of goods sold. The lost units leave your ending inventory, so cost of goods sold goes up. You must then include any reimbursement in gross income.
• As a separate loss. You remove the units from cost of goods sold and deduct the loss separately. The reimbursement reduces the loss and is not included in gross income.

Most FBA sellers use the first approach because their inventory counts already drop when Amazon reports the loss. Both approaches reach the same taxable result: you are taxed only on the amount by which the reimbursement exceeds the cost of the units. Inventory must be valued consistently from year to year under 26 CFR 1.471-2, so pick one method and keep it.

In a Seller Forums announcement, Amazon said it would reimburse lost or damaged inventory based on manufacturing cost. A later post moved the effective date to March 31, 2025.

• Definition. Amazon defines manufacturing cost as your cost to source the product from a manufacturer, wholesaler or reseller, or to produce it. It excludes shipping, handling, customs duties and other costs.
• Your cost or Amazon’s estimate. You can enter your own costs in Seller Central. If you do not, Amazon uses its own estimate.
• After a customer order. Items lost or damaged after a customer order are still reimbursed at the sale price on the original order minus applicable fees.

The accounting effect: your landed cost includes freight, duties and tariffs, but Amazon’s reimbursement does not. The gap is a loss your books should show. Keeping supplier invoices by SKU also supports the costs you enter with Amazon. For more on what belongs in landed cost, see tariffs, landed cost and COGS.

• Settlement and payments reports. Reimbursements appear as their own adjustment lines inside a settlement, mixed in with orders, refunds and fees. They are part of the net amount Amazon deposits.
• Fulfillment reports. Seller Central’s FBA reports list reimbursements and inventory adjustments by SKU, with the reason and quantity. Use them to match each reimbursement to the units you remove from inventory.
• Reversals. If Amazon finds a unit later, it can reverse the reimbursement in a later settlement. Match each reversal to the original line.

Reconcile settlements at the gross level and tie the net to the bank, as covered in Amazon seller accounting.

Best for: FBA sellers whose reimbursements have been booked as sales, or whose inventory never ties to Amazon’s counts.

1. Free initial consultation. Tell us your channels, how you value inventory and where your books stand.
2. Fees quoted upfront, in writing. Transparent, fair fees in an engagement letter before work starts.
3. Review. We map your settlement lines, including reimbursements and reversals, to the right accounts.
4. Inventory tie-out. We match reimbursed units to inventory removals at landed cost.
5. Monthly close and tax. Settlements tied to the bank, and a business return that treats reimbursements consistently.