What is a Credit Card Surcharge? A Guide for US Businesses

A credit card surcharge is a little extra fee a business might charge when you pay with a credit card.

When a customer pays with a card, the business has to pay fees to the credit card company and to their payment processor. These fees are usually a small percentage of the sale, but they can add up. Last year, credit card companies in the US earned $148.5 billion from processing fees charged to merchants.

The surcharge amount can be different depending on what deal the business has with its payment provider. It’s usually a small percent of the total cost.

Why do businesses add surcharges?

Businesses add credit card surcharges to help cover the cost of accepting credit card transactions.

Every time a customer pays with a credit card, the business gets charged a fee by their bank or payment provider.

Instead of taking that hit themselves, businesses pass on some of the cost to customers through a surcharge. This is especially helpful for small businesses or ones with tight profit margins.

Want to learn more about handling card payments? Check out our guide on how to accept credit card payments.

How surcharges differ from convenience fees and cash discounts

Surcharges, convenience fees, and cash discounts all deal with how customers pay, but they’re not the same thing.

• Surcharges are extra fees added only when someone pays with a credit card. It’s a way for businesses to cover the cost of credit card processing fees.
• Convenience fees are a bit different. These are charges for using a non-standard payment method. For example, if a business normally takes payments in person, but you choose to pay online or over the phone, they might add a convenience fee. It’s not about credit cards specifically, just the payment method being out of the ordinary for that business.
• Cash discounts go the opposite way. Instead of charging more for using a card, the business offers a small discount if you pay with cash. So, the regular price is for card payments, and cash buyers get a little money off.

Is it legal to add a credit card surcharge?

You know what it is, now let's discuss surcharge laws. Credit card surcharges aren’t the same everywhere, and if you're running a business, you’ve got to play by the rules:

US federal laws vs. state-specific rules

Most US businesses can add a credit card surcharge to help cover processing fees. But you need to follow both federal rules and state laws and those can vary a lot. Here’s what you’re allowed to do (and what you’re not):

• You can charge up to 4% of the total sale, but Visa limits it to 3%.
• You can’t add surcharges to debit or prepaid cards, even if they’re run as “credit.”
• You must tell customers upfront with clear signage at the entrance, at checkout, and on the receipt.
• You have to give 30 days’ notice to card networks and your payment processor before you start taking surcharge costs from customers.
• The surcharge has to match your actual processing cost (or be lower). No making a profit off it.
• You need to treat all card brands the same, you can’t charge a fee just for using, like Amex.

So even though it’s legal in general, you can’t just throw on a fee without warning.

States where credit card surcharges are prohibited

Some states have extra rules or ban surcharges altogether. The chart below shows where surcharges are not allowed, along with the latest recent legal changes, anti-surcharging laws, and court rulings.

How to implement a credit card surcharge in your business

You know what it is. You’ve checked whether it’s legal in your state. Now, here’s how to actually roll it out in your business, step by step.

Steps to set up a surcharge policy

Now don’t overthink this. A business's surcharge policy just means you've decided how much you're going to charge (either a fixed amount or a small percentage), when, and how you’ll communicate that to your customers.

What are the applicable rules? Are you going to charge a flat fee or a small percentage?

Once you know what your policy is, you have to talk to your payment processor. Seriously, do not skip this. Not all processors support surcharges, and if yours doesn’t, you’ll hit a wall fast. The good news is that many do. The even better news is some will help you set everything up.

Then comes the paperwork part. This is when you need to notify the card networks. Visa, Mastercard, the whole gang, need 30 days’ advance notice.

Notifying and informing customers

You've now built your surcharge policy. You've got the numbers, the systems, the green light from your state after checking credit card surcharge laws and the payments industry.

Next, it's time to tell your customers. Now, this isn’t a 'maybe I’ll just add it to the receipt and hope no one notices' moment. This is about being upfront, honest, super clear.

No one likes to be caught off guard at the checkout and customer trust is extremely important for any business. In fact, PWC found that 93% of business executives agree that building and maintaining trust improves the bottom line.

So how do you do it?

• Put clear signs at the entrance and checkout explaining that there’s a surcharge for credit card payments. Make sure the sign tells you how much of a surcharge.
• Let customers know the checkout fee before they pay, not after.
• Show the credit card price separately from the original price at checkout.
• Put the surcharge amount on the receipt as its own line.

Being upfront helps avoid complaints and keeps you on the right side of the law.

Payment processor requirements

Your payment processor might have extra rules for implementing credit card surcharges. Ask them:

1. How do I add the surcharge to my POS system?
2. Will you notify the card networks for me?
3. Will you block surcharges on debit card payments? (they should)

Processors can also help you calculate your interchange fees and transaction costs so you don’t go over the allowed limit.

Examples of surcharge amounts and limits

Here’s how surcharges work in practice:

• $100 purchase with a 3% credit card fee = $3 surcharge
• Fixed surcharge example: $1.25 added to each credit card purchase, no matter the amount

Pros and Cons of Adding a Surcharge

Thinking of adding a fee when people pay by credit card? Here’s the lowdown (what’s good, what’s not) so you can decide if it’s worth it for your business:

Pros:

1. Covers your card fees: Every time someone pays with a credit card, thought of as expensive payment methods, you pay a fee. A surcharge helps cover that so you reduce transaction costs.
2. Keeps more money in your pocket: If your profit margins are tight, surcharges can help. You’re not stuck paying for someone else’s credit card points.
3. Gets people to use cheaper options: When customers see there’s a fee for credit cards, they might switch to debit or cash, which costs you less to process.

Cons:

1. Customers might not love it: No one likes extra credit card processing fees. Some people could get annoyed or even walk away if they see a surprise charge at checkout.
2. You’ve got to follow a bunch of rules: You can’t just add any old fee. You’ve got to tell the card networks, post signs, and never add it to debit cards. It’s a bit of a process.
3. It might hurt your image: Passing on credit card fees to customers might be seen as sneaky or greedy to some people, even if you're just covering costs. Not great if you're trying to build customer loyalty.

Best practices for compliance and transparency

Clear pricing displays

If you’re adding a credit card surcharge, you’ve got to keep things clear and honest with your customers.

Make sure the surcharge is easy to see before they pay, put up signs at the entrance and near the checkout, and show the fee clearly on receipts.

If you sell online, tell customers about the surcharge before they enter their card details. This way, nobody gets caught off guard and everyone feels respected.

Staff training

Your team should know the rules too. If a customer asks, your staff should be able to explain:

• What the surcharge is
• Why it’s there (to cover credit card processing costs)
• That it doesn’t apply to debit cards
• What other payment options are available (like cash or debit)

Even a quick team meeting or cheat sheet at the till can make a big difference.

Monitoring for regulatory updates

Laws and rules about surcharges can change, sometimes quickly. It’s important to keep an eye on updates from your state, credit card networks, and your payment processor.

Some payment processors even send automatic alerts about rule changes.

Tools to simplify payment processing

That's it from us. We've given you the complete 411 on what surcharges are, why businesses apply surcharges, and the laws around them.

If you’re adding a credit card surcharge, the right tools can make your life way easier.

Integrated card machines and POS systems can automatically calculate and apply surcharges.

Plus, choosing a payment processor that supports surcharging as part of their payment processing services (and stays on top of the rules) is key. Not all do, so double-check before signing up.

With Epos Now, you get a system built for compliance and efficiency. From automated surcharge settings to clear receipts and real-time reporting, it’s all designed to help you follow the rules and keep things smooth for you and your customers.

Contact our team today for more information or keep learning with our “how payment processing works” guide.