Credit card surcharges are generally permissible in the United States. These surcharges are added to credit card transactions to cover processing fees. The surcharge amount is typically a percentage of the transaction. Businesses must inform customers about the surcharge before the transaction.
California Senate Bill 478, part of the Consumer Legal Remedies Act, bans all “junk fees” on purchases across California. This includes credit card surcharges in most situations. It's also worth noting that California's new laws extend beyond credit card surcharges.
Key Takeaways
Credit card fees are not deductible for individuals and are deductible for businesses. Businesses can deduct all credit card fees as well as finance charges. Businesses are eligible to deduct credit or debit card processing fees associated with paying taxes, but individuals are not.
Under the law, businesses must take steps to ensure that charges to customers' credit cards, debit cards, phone bills, and other accounts are authorized.
There is no prohibition for credit card surcharges and no statute on discounts for different payment methods. Merchants can impose a surcharge as long as it doesn't exceed the cost of the merchant's processing fee. Merchants may offer discounts for payment by cash, check or other methods unrelated to credit cards.
Q: Are there any states where credit card surcharging is prohibited? Yes, as of the latest updates, credit card surcharging is prohibited in Massachusetts, Connecticut, and Puerto Rico. Merchants must stay informed of changing laws to ensure compliance.
Because they can be classified as operating expenses, the answer to 'are merchant fees tax deductible' is usually yes. Your business pays fees to both the card issuer and card network processor to accept credit card payments.
Businesses cannot impose any surcharge for using the following methods of payment: consumer credit cards, debit cards or charge cards. similar payment methods that are not card-based (for example, mobile phone-based payment methods) electronic payment services (for example, PayPal)
A surcharge is not a convenience fee. A convenience fee is levied by a merchant for offering customers the privilege of paying with an alternative non-standard payment method. Merchants can process convenience fees in all 50 states. A surcharge is levied by a merchant for customer purchases made with a credit card.
Consumer Financial Protection Bureau Releases Final Rule on Credit Card Late Fees, with Overdraft Fees on Deck. On March 5, 2024, the Consumer Financial Protection Bureau (Bureau) announced the final rule governing late fees for consumer credit card payments, likely cutting the average fee from $32 to just $8.
If you have a dispute with the seller about an item or service you purchased with a credit card, you might be able to withhold payment on the card up to the amount outstanding for that purchase. This rule has a few exceptions and conditions you must meet before you withhold payment.
In 1985, California passed a law (Civil Code section 1748.1) that prohibited merchants from adding a surcharge (an extra fee) when customers pay by credit card instead of cash.
Customers can report merchants to the State's Attorney General; and in some states, merchants that implement surcharging illegally may get fined. The easiest way to stay out of trouble is to follow the rules. Never charge above the surcharging limits. Always have the signs up.
Use cash where you can
The easiest way to avoid card surcharges is to pay by cash. While businesses can charge a surcharge for paying by debit or credit cards, they can't charge a surcharge for paying by cash.
Businesses are charged a credit card processing fee, also known as a merchant fee, every time a customer pays with a credit card. Retailers are required to pay this fee, typically ranging between 1.5% and 3.5% per transaction.
Similar to the authorization fee, the transaction fee associated with the initial sale is not reversed during a refund. Merchants typically absorb this cost.
These fees are considered to be ordinary and necessary expenses directly associated with the operation of your business. When you accept credit card payments from customers, you can deduct the fees charged by the payment processor or merchant services provider, reducing your taxable income and increasing tax savings.
Using a business credit card for personal purchases isn't technically illegal, but it could violate the terms and conditions of your card agreement, which has consequences.
Credit card processing fees typically cost a business 1.5% to 3.5% of each transaction's total. For example, you'd pay $1.50 to $3.50 in credit card fees for a sale of $100.
To avoid a credit card surcharge, you can pay with alternative methods such as cash, debit cards, or mobile payment apps. Some businesses also offer discounts for non-credit card payments, providing an incentive to choose other payment options that help avoid credit card surcharge.
Federal law requires creditors to disclose important rate and fee information to you before you apply for a credit card, which makes it easier for you to compare cards. Consider these things when shopping: Annual Percentage Rate (APR): The APR represents the annual cost—both interest and fees--of the credit card.
U.S. merchants have the option to add a surcharge at the “brand level” to all transactions on Visa credit cards, or to transactions on particular types of Visa credit cards at the “product level” (e.g. Visa Traditional, Visa Traditional Rewards, Visa Signature) but not both.