Surcharging is alegal andoptimal way for most merchants to make their credit card fees go to zero.
However, it’s not assimpleas 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 howtocalculate surcharges.
Whatare the keysurchargingrules?
There are3 overarching guidelinestocompliantsurcharging.
- Only surcharge credit cards. Visa and MasterCard card brand rules prohibit surcharging other types of cards.
- 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 typicallyrange from1.5% to 4%. Also, you may neversurchargemore than 4%on any single transaction.
- Fully disclose the surcharge to your customer. The card brands and most states require merchants todisclose thesurchargeamountin 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.
- Determinewhether the card type can be surcharged.Ensure that you know that the card is a credit card.
- 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.
- Calculate the surcharge amount for that order and card type.
If the card and location can be surcharged, thecalculation varies according to how you decide to surcharge.
- Fixed % surcharge(recovers the least, prone to over- or under-surcharging).If you’re imposing a fixed percentage surcharge amount, multiply that percentage by theorder value. Note that this method may result in an over- or under-surchargedepending upon your processing terms.
- 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 thatcard’sspecificrateand multiply it by the order value.Note that this method results in the exact surcharge amount and recovers the most fees.
- In either case, ensure that you separately list the surcharge amount on thepayment 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 automatesall ofthe compliance rules and surcharge calculations (including onrefunds). We take the compliance liabilityout of your hands. And we allow you tocustomize your surchargingto your business and customers.
Our API installs anywhere you accept cardpaymentsand we havea number ofout-of-the-box integrations already in place.If you’d like to learn more or get started, we’re here at your command.
