Everything CPAs and Accountants Need to Know About Credit Card Surcharge Processing

Content originally appeared on the CPACharge blog.

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.

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.

The legal status of surcharging in the U.S. (by state)

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.

Alabama:
Surcharge Prohibited: No
Credit/Debit Usage Discounts: No
Resources: Alabama Attorney General

Alaska:

Surcharge Prohibited: No

Credit/Debit Usage Discounts: No

Resources: State of Alaska Department of Law

Arizona:

Surcharge Prohibited: No

Credit/Debit Usage Discounts: No

Resources: Arizona Attorney General

Arkansas:

Surcharge Prohibited: No

Credit/Debit Usage Discounts: No

Resources: Arkansas Attorney General

California:

Surcharge Prohibited: No

Credit/Debit Usage Discounts: Yes

Resources: California Attorney General

Colorado:

Surcharge Prohibited: Yes

Credit/Debit Usage Discounts: Yes

Resources: Colorado Attorney General

Connecticut:

Surcharge Prohibited: Yes

Credit/Debit Usage Discounts: Yes

Resources: Connecticut Attorney General

Delaware:

Surcharge Prohibited: No

Credit/Debit Usage Discounts: No

Resources: Delaware Attorney General

Florida:

Surcharge Prohibited: No

Credit/Debit Usage Discounts: No

Resources: Florida Attorney General

Georgia:

Surcharge Prohibited: No

Credit/Debit Usage Discounts: No

Resources: Georgia Attorney General

Hawaii:

Surcharge Prohibited: No

Credit/Debit Usage Discounts: No

Resources: Hawaii Attorney General

Idaho:

Surcharge Prohibited: No

Credit/Debit Usage Discounts: No

Resources: Idaho Attorney General

Illinois:

Surcharge Prohibited: No

Credit/Debit Usage Discounts: No

Resources: Illinois Attorney General

Indiana:

Surcharge Prohibited: No

Credit/Debit Usage Discounts: No

Resources: Indiana Attorney General

Iowa:

Surcharge Prohibited: No

Credit/Debit Usage Discounts: No

Resources: Iowa Attorney General

Kansas:

Surcharge Prohibited: No

Credit/Debit Usage Discounts: No

Resources: Kansas Attorney General

Kentucky:

Surcharge Prohibited: No

Credit/Debit Usage Discounts: No

Resources: Kentucky Attorney General

Louisiana:

Surcharge Prohibited: No

Credit/Debit Usage Discounts: No

Resources: Louisiana Attorney General

Maine:

Surcharge Prohibited: No

Credit/Debit Usage Discounts: No

Resources: Maine Attorney General

Maryland:

Surcharge Prohibited: No

Credit/Debit Usage Discounts: Yes

Resources: Maryland Attorney General

Massachusetts:

Surcharge Prohibited: Yes

Credit/Debit Usage Discounts: Yes

Resources: Massachusetts Attorney General

Michigan:

Surcharge Prohibited: No

Credit/Debit Usage Discounts: No

Resources: Michigan Attorney General

Minnesota:

Surcharge Prohibited: No

Credit/Debit Usage Discounts: No

Resources: Minnesota Attorney General

Mississippi:

Surcharge Prohibited: No

Credit/Debit Usage Discounts: No

Resources: Mississippi Attorney General

Missouri:

Surcharge Prohibited: No

Credit/Debit Usage Discounts: No

Resources: Missouri Attorney General

Montana:

Surcharge Prohibited: No

Credit/Debit Usage Discounts: No

Resources: Montana Attorney General

Nebraska:

Surcharge Prohibited: No

Credit/Debit Usage Discounts: No

Resources: Nebraska Attorney General

Nevada:

Surcharge Prohibited: No

Credit/Debit Usage Discounts: Yes

Resources: Nevada Attorney General

New Hampshire:

Surcharge Prohibited: No

Credit/Debit Usage Discounts: No

Resources: New Hampshire Attorney General

New Jersey:

Surcharge Prohibited: No

Credit/Debit Usage Discounts: No

Resources: New Jersey Attorney General

New Mexico:

Surcharge Prohibited: No

Credit/Debit Usage Discounts: No

Resources: New Mexico Attorney General

New York:

Surcharge Prohibited: No

Credit/Debit Usage Discounts: No

Resources: New York Attorney General

North Carolina:

Surcharge Prohibited: No

Credit/Debit Usage Discounts: No

Resources: North Carolina Attorney General

North Dakota:

Surcharge Prohibited: No

Credit/Debit Usage Discounts: No

Resources: North Dakota Attorney General

Ohio:

Surcharge Prohibited: No

Credit/Debit Usage Discounts: No

Resources: Ohio Attorney General

Oklahoma:

Surcharge Prohibited: No

Credit/Debit Usage Discounts: Yes

Resources: Oklahoma Attorney General

Oregon:

Surcharge Prohibited: No

Credit/Debit Usage Discounts: No

Resources: Oregon Attorney General

Pennsylvania:

Surcharge Prohibited: No

Credit/Debit Usage Discounts: No

Resources: Pennsylvania Attorney General

Rhode Island:

Surcharge Prohibited: No

Credit/Debit Usage Discounts: No

Resources: Rhode Island Attorney General

South Carolina:

Surcharge Prohibited: No

Credit/Debit Usage Discounts: No

Resources: South Carolina Attorney General

South Dakota:

Surcharge Prohibited: No

Credit/Debit Usage Discounts: No

Resources: South Dakota Attorney General

Tennessee:

Surcharge Prohibited: No

Credit/Debit Usage Discounts: No

Resources: Tennessee Attorney General

Texas:

Surcharge Prohibited: No

Credit/Debit Usage Discounts: No

Resources: Texas Attorney General

Utah:

Surcharge Prohibited: No

Credit/Debit Usage Discounts: No

Resources: Utah Attorney General

Vermont:

Surcharge Prohibited: No

Credit/Debit Usage Discounts: No

Resources: Vermont Attorney General

Virginia:

Surcharge Prohibited: No

Credit/Debit Usage Discounts: No

Resources: Virginia Attorney General

Washington:

Surcharge Prohibited: No

Credit/Debit Usage Discounts: Yes

Resources: Washington Attorney General

West Virginia:

Surcharge Prohibited: No

Credit/Debit Usage Discounts: No

Resources: West Virginia Attorney General

Wisconsin:

Surcharge Prohibited: No

Credit/Debit Usage Discounts: Yes

Resources: Wisconsin Attorney General

Wyoming:

Surcharge Prohibited: No

Credit/Debit Usage Discounts: Yes

Resources: Wyoming Attorney General

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.