How to Calculate Surcharges

a woman wearing a backpack and holding books, standing in front of a giant whiteboard of math equations filling all space

Surcharging is a legal and optimal way for most merchants to make their credit card fees go to zero. 

However, it’s not as simple as just adding “3%” to every order. Why? There are many rules and regulations that you need to follow – It’s like sales tax. 67 jurisdictions govern whether, when, where, and how much you can surcharge on any transaction. The governing bodies include the federal and each state government as well as the card brand networks (Visa, MasterCard, etc.).  In this article, we’ll walk through how to calculate surcharges. 

What are the key surcharging rules?  

There are 3 overarching guidelines to compliant surcharging. 

  1. Only surcharge credit cards.  Visa and MasterCard card brand rules prohibit surcharging other types of cards. 
  2. Never profit from a surcharge.  You are never allowed to charge more than your cost of accepting a credit card.  These costs are unique to each merchant and typically range from 1.5% to 4%.  Also, you may never surcharge more than 4% on any single transaction. 
  3. Fully disclose the surcharge to your customer.  The card brands and most states require merchants to disclose the surcharge amount in two places.  First, before the customer chooses its payment method.  This can be done via basic text at the checkout process or, for phone orders, verbally.  Second, on the receipt as a separate line item. 

How do you calculate surcharge amounts? 

There are 3 steps to calculating the proper surcharge amount. 

  1. Determine whether the card type can be surcharged.  Ensure that you know that the card is a credit card. 
  2. Determine that the cardholder can be surcharged.  Currently 47 states allow surcharging (though there are nuances in a few states).  3 states prohibit surcharging as of October 2021.  The customer’s location varies for in-person purchases and online/phone order purchases. 
  3. Calculate the surcharge amount for that order and card type.   

If the card and location can be surcharged, the calculation varies according to how you decide to surcharge. 

  1. Fixed % surcharge (recovers the least, prone to over- or under-surcharging). If you’re imposing a fixed percentage surcharge amount, multiply that percentage by the order value.  Note that this method may result in an over- or under-surcharge depending upon your processing terms.  
  2. Variable % surcharge (recovers the most, most accurate surcharging method). If you surcharge each card’s rate according to its exact fee (called dynamic surcharging), multiply that card’s specific rate and multiply it by the order value.  Note that this method results in the exact surcharge amount and recovers the most fees.  
  3. In either case, ensure that you separately list the surcharge amount on the payment confirmation. 

(Note: if you refund an order, the surcharge is also refunded in a pro rata amount.  It’s the same way you’d refund sales tax.) 

How merchants can calculate surcharges (the easy way) 

InterPayments’ surcharging calculation engine automates all of the compliance rules and surcharge calculations (including on refunds).  We take the compliance liability out of your hands.  And we allow you to customize your surcharging to your business and customers.  

Our API installs anywhere you accept card payments and we have a number of out-of-the-box integrations already in place.  If you’d like to learn more or get started, we’re here at your command.