Billing and Payments

Credit Card Surcharge Processing: What CPAs and Accountants Need to Know

John Lehman
March 09, 2020

CPAs and accountants are all too familiar with the fact that it costs money to move money within our financial systems. Credit cards are no exception to this rule—if you accept credit card payments from your clients, you’ll inevitably have to pay processing fees with each transaction. Of course, as a business owner, you’re also looking for ways to off-set your costs and operate more efficiently.

Many businesses that accept credit cards use surcharges to account for this, but you may be wondering how to effectively implement one into your billing, or if it's even legal for you to do so in your state.

Below, we’ll break down exactly what surcharging means, including its legal status in the U.S. and what you can do to implement them.



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What is a surcharge?

In the context of credit cards, surcharging is defined as adding up to 4 percent on credit card transactions to recoup payment processing costs. The practice became permissible to merchants in 2013 in the wake of a class action lawsuit against Visa and MasterCard.

It’s important to note that a surcharge is distinct from a convenience fee, which is a relatively older but similar term in the credit card lexicon. A convenience fee is a flat rate that can be added to both debit and credit card transactions. It’s a cost passed to the customer to give them the option of paying in a way that’s convenient to them, hence the name.

Surcharging has been outlawed as an anti-consumer practice in certain states. However, these laws were challenged in such states as New York and California, and other states may follow suit as time goes on.

Below is a list of each state’s surcharging laws (last updated March 2021). If you have any questions about your state’s surcharging laws, please contact your state attorney general.

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Credit card surcharging rules

If you choose to surcharge, you’re required to follow rules put in place by each credit card brand. We’ll discuss the most common rules below:

Notify the card brand of your intent to surcharge

Almost every major card brand requires you to notify them of your intention to surcharge. Most brands have a form you can fill out available on their website. Otherwise, you must provide a written letter to your account representative. Fortunately, if you’re using the right online payment solution, this step can be skipped altogether, as they will handle it on your behalf.

Notify your clients of your intention to surcharge

You are also required to notify your customers or clients of your intention to surcharge (as soon as you are eligible to do so). For example, if using an online payments solution, you would have to include language on your payment page that clearly states your intentions to do so.

Do not surcharge more than the cost of your processing fee

This rule essentially means that you can only surcharge to recoup the losses sustained from processing fees—you cannot use surcharging as a means to profit. If, for example, your all-in rate is only 3 percent, you cannot apply a 4 percent surcharge.

Surcharges must be listed as separate line items

You cannot simply loop your surcharges into each transaction. Whenever a surcharge occurs, it must be listed separately on each invoice.

Payment processing may be one of the costs of doing business in today’s economy. However, your clients will appreciate being able to pay with a more convenient payment option, which increases the speed and the frequency that you’ll get paid for your services. And with surcharging, you can benefit from the efficiency and popularity of online payment solutions while still offsetting the fees associated with credit cards.