Credit card surcharges are probably something you’ve barely thought about in the midst of all the email newsletters, client consultations and blog posts you churn out every week. But that 3%+ fee on the money your clients' send you—your livelihood—can have a big effect on your business. If your business nets $100k a year, that’s roughly $3,000 you’re paying for… what? A swipe and convenience for your customers.

There are definitely some real benefits to allowing your clients to pay with credit cards, but at what cost? A real financial one for sure, but if you’re not careful, a big legal one too. Today, we’re breaking down credit card fees—what can you pass on to your client? Can you even legally pass them on to your client? How much can you pass on? What are the alternatives to passing fees on?

Can you pass credit card fees on your clients?

Yes, in most states. As of January 2013, merchants (that would be anyone who accepts payment for a product or service, aka YOU!) can now pass the credit card fees (aka surcharge) on to clients and consumers (where merchants previously just had to eat the cost.) However, there are some general guidelines if you decide to charge a surcharge:

1. Surcharges must be the same for all CREDIT cards you accept.

You must charge the same surcharge across all cards (or risk the card company pulling your ability to accept their card). For example, if you accept both Visa and Mastercard, you must charge a 3% surcharge on Mastercard purchases AND Visa purchases. You cannot charge 3% for Mastercard purchases and 2% for Visa purchases. You may not pass on surcharges for purchases made with debit cards.

2. The maximum surcharge cannot exceed 4%.

It may be even lower in some circumstances (for example, if you only have to pay 3% to Visa for accepting their cards, you may not charge 4%).

3. Customers must be notified they are paying a surcharge. 

Around your website or store you need to post that you will be charging a credit card processing fee/surcharge in a place visitors are likely to see it, like in your client contract or near the front of your shop. You must explicitly identify the exact surcharge at the point of purchase. For example, on the receipt, it should say something like “Credit Card Processing fee — 3%– $1.30”

4. You must register your surcharge with the card issuers.

They need to know about it, and to register your card, see the links to the cards you accept in the “Related Links” section below.

Where is it illegal to pass on credit card fees?

The following states have restrictions or a complete ban on credit card fee surcharges on transactions that occur in their state. They are as follows:

• California
• Colorado
• Connecticut
• Florida
• Kansas
• Maine
• Massachusetts
• New York
• Oklahoma
• Puerto Rico
• Texas

What happens if I accidentally broke the law and charged a surcharge to a customer in one of the prohibited states?

Law School 101: Mistake of fact? Sometimes okay. Mistake of Law? Big no-no.

The penalty for surcharging where it’s illegal will vary by state law, but in my layperson opinion, it’s not something I’d lose sleep over based on how arduous the process to report card surcharges seems. Your client would have to report you to that state’s attorney general, and you’d be forced to refund the surcharge paid. Depending on state law, there may be additional penalties such as a fine and/or an affidavit saying you will no longer pass on surcharges in that state.

This is too complicated. Isn’t there another solution?

Yes, in most states you are allowed to charge a price for a service or good, then offer a discount to customers who pay in cash. For example, if you charge $3,000 for a package of private yoga sessions, you could offer cash payors a 3% discount. (I just picked 3% because that seems to be the going rate for credit card fees these days- there doesn’t seem to be a maximum discount in any state.) Then, if someone wanted to pay in cash, you’d receive $2910 ($90 less for other Bad Math-ers out there.) Check out what the current laws in your state are and make sure this is allowed (as of publication it seems to be allowed pretty much everywhere, but double check this up-to-date link.)

The best way to approach this business decision is to look at things through the eyes of your client. What would they like? What would turn them off? Frankly, in my business owner opinion, a discount sounds a heckuvalot better than a ‘surcharge.’ Gross.

Related Links:

Mastercard Surcharging Guidelines and Registration

Visa Surcharging Guidelines and Registration

American Express Surcharging Guidelines and Registration

PayPal does not permit surcharging.

Current Rules by State regarding Surcharges and Cash Discounts

Note: This article is specifically written for businesses based in the United States. The above post is offered as information. This is not legal advice nor is an attorney-client relationship formed by reading or responding to this article. Any similarity to real persons or events is purely coincidental.