Updated 10/27/2026
When you shop at small businesses, you might notice that they charge you more if you pay with a credit card. It's common practice these days.
That's because credit card companies charge businesses each time their customers use cards, and many small businesses already have small profit margins. Passing that fee on to customers as a surcharge (who can pay cash to avoid it) helps many small businesses keep their doors open.
Does this mean your business should do that? In this article, we'll explore your options.
At CSI Accounting & Payroll, we’ve worked with small business finances for 60 years. That means we’ve answered plenty of questions about surcharges!
We'll address the common ones here, including:
- What is a credit card surcharge?
- Are credit card surcharges legal? What are the rules?
- I don't want to pass credit card surcharges to my customers. What are the pros and cons of alternative methods?
Defining Credit Card Surcharges
As we mentioned, many small businesses add a small surcharge for customers who pay with credit cards (which can be avoided with cash payments).
However, that fee doesn't originate from them. It comes from credit card companies.
How much do credit card companies take from businesses? They take a certain percentage of each purchase, so it depends on a business’s sales. They can lose 2-3% of each purchase to Mastercard or Visa, or they can lose 3.5% to American Express.
This may not seem like a lot for a small purchase, but it adds up quickly if a majority of a business’s sales are paid by credit card. This applies to most industries, but especially small retailers.
Where Surcharges Are Legal (& Their Rules)
It is legal in the U.S. for credit card companies to add a surcharge to business transactions.
It’s also legal in most states for businesses to pass these fees to their customers. (Just not in Connecticut, Maine, Massachusetts, and Oklahoma... so look at the alternatives in the next section if you’re in these states.)
If you are in a state where it's legal, there are a few rules from the credit card companies that you need to follow if you want to pass the surcharge to your customers.
The rules include:
- No overcharging. You can’t overcharge customers for the surcharges to make a profit in this area. You should also make sure your state doesn’t have caps on how much of the surcharge you can pass to customers.
- No debit card fees. You can’t apply surcharges to debit card transactions, even if they’re run like credit cards. Credit cards only!
- Notify credit card companies. You must notify them in writing at least 30 days in advance that you will start passing on the surcharge to your customers.
- Notify customers. You must clearly disclose the surcharge in writing at your front door, cash register, and on the receipt as a separate line item. Customers can report you to the authorities for not doing so.
To pass those credit card surcharges on to your customers, you'll either need to manually add these fees each time a customer pays by credit card, or you can pay for a third party to automate it. Third-party surcharge services often charge a small fee, but it’s still cheaper than paying the credit card surcharges yourself and cuts out the repetitive labor of manually entering those fees.
Not a fan of either of those options? We'll go over alternatives in the next section.
Pros & Cons of Alternative Solutions
The following section covers these alternative solutions.
Please ask your accountant if your selected method is in legal compliance for your area.
Minimum Purchase Amounts
We see this one a lot. Many small businesses only allow credit card purchases if the total is over a certain dollar amount.
The pros:
- Legal in all U.S. states. (Check your local laws and credit card companies’ rules.)
- No extra fees for customers.
- May encourage customers to opt for add-ons to meet the minimum purchase requirement.
- Offsets surcharges for lower-value purchases.
The cons:
- May not offset surcharges for higher-value purchases.
Convenience Fees
If you do a lot of business online, this can help close the gap of credit card surcharges! Just make sure to disclose the fee prior to the purchase.
The pros:
- Legal in all U.S. states. (Check your local laws.)
- Familiar and inoffensive to customers.
- Convenience fee can exceed credit card surcharge.
- Can also apply to debit cards.
The cons:
- Only for online payments.
Cash Discounting
This is when there are two prices listed – a default price for credit card purchases, and a discounted one for cash purchases. It can be thought of as a reward instead of a consequence, which makes for happier customers!
The pros:
- Legal in all U.S. states. (Check your local laws.)
- Discounts are perceived better than added fees.
The cons:
- The initial need to raise the default costs of all items.
- Extra work to add discounts at the register.
- More cash means more bank deposits required.
- Potential perceived unfairness if a customer doesn’t have enough cash on hand.
Even if payment isn’t due immediately, sometimes it’s better to get 96.5-98% payment now with a credit card (factoring in the surcharge) instead of a 100% payment with cash later. It’s up to you!
Our Recommended Method
As we mentioned, with the cash discounting method, you need to raise the default price of all items. However, you can just build the cost of credit card surcharges into the default price of all items and then not offer a cash discount or add any fees in.
We believe many businesses are already following this method, and it goes around many technicalities and legalities.
The pros:
- Legal in all U.S. states. (Check your local laws.)
- Avoids extra work to cash-discount items.
- Prevents extra bank deposit requirements that would be needed with extra cash on hand.
The cons:
- The initial need to raise the costs of all items.
- Overall higher prices may cause customer dissatisfaction and discourage the purchase of optional add-ons.
- Customers may take business elsewhere if you have good competitors.
Some advice that we offer is based on what we think is best for all small businesses, based on our 60 years of expertise.
However, when you partner with a year-round accounting service like us, you also get advice that’s curated for your business’s unique situation. This means we can help you way beyond tax season!
Make Informed Financial Decisions
Now that you know what credit card surcharges are, how they’re legal to pass on to customers in most states, and alternative solutions to make up for these fees (including our recommended method), are you ready to check out monthly accounting services?
If so, please consider CSI Accounting & Payroll! To see if we can be a good fit for your business, click the button below for a free consultation:
Not ready to talk? That’s okay! First, learn more about monthly accounting here:
