In most of the United States, a merchant can pass on credit card fees to the customer through a surcharge, but the right to do so comes with hard limits: the fee can’t exceed your actual cost of processing or the card network’s cap (whichever is lower), it can’t be applied to debit or prepaid cards, you have to give the networks 30 days’ written notice, and you have to disclose it clearly before the sale. A handful of states still ban the practice outright, and getting any piece wrong can cost you the ability to accept cards at all.
Which States Still Ban Surcharges
As of late 2025, roughly four or five states and one territory prohibit merchants from adding a fee to credit card purchases. In those jurisdictions, charging $103 for a $100 item because the customer paid with a credit card can trigger civil penalties or an enforcement action from the state attorney general. Everywhere else, surcharging is permitted so long as you follow the card network rules and disclosure requirements.
The legal ground shifted after the Supreme Court’s 2017 decision in Expressions Hair Design v. Schneiderman. The Court did not strike down New York’s surcharge ban, but it held that laws regulating how merchants label the difference between cash and credit prices are speech regulations and must be evaluated under First Amendment scrutiny.1Supreme Court of the United States. Expressions Hair Design v. Schneiderman The case went back to the lower courts for that analysis, and the ripple effect prompted several states to repeal their bans or quietly stop enforcing them. Because the map keeps changing, verify your own state’s current statute before you set up a surcharge; a rule that was unenforceable last year may be re-codified this year.
How Much You Can Add
Even where state law allows surcharging, you still have to comply with the private contractual rules set by Visa, Mastercard, American Express, and Discover. These rules exist independently of any statute, and the networks enforce them by cutting off your card acceptance.
Visa caps the surcharge at 3% of the transaction or your actual cost of processing the card, whichever is lower.2Visa. U.S. Merchant Surcharge Q and A Mastercard’s cap is 4% or your actual cost, whichever is lower.3Mastercard. What Merchant Surcharge Rules Mean to You For most merchants the effective ceiling is 3%, because if you accept both networks you’ll typically apply a single rate to all credit cards, and that rate has to satisfy the stricter network.
The “whichever is lower” piece is where merchants trip up most often. If your effective processing rate is 2.1%, you cannot charge customers 3%. The surcharge has to reflect what the cards actually cost you, not the maximum allowed by the network. Pull your processing statements, add up the fees, divide by credit card volume, and use that number as your ceiling.
Notifying the Networks and Choosing a Structure
Before you add a surcharge, you have to notify the card networks and your acquiring bank in writing at least 30 days in advance.4Visa. Surcharging Credit Cards – Q&A for Merchants The notice period lets the networks confirm your systems and signage are set up correctly. Skip it and you’re in violation from day one.
You also have to pick a structure and stick with it. You can surcharge at the brand level (the same rate on every Visa credit card, for instance) or at the product level (different rates for Visa Signature versus Visa Traditional), but not both at once.4Visa. Surcharging Credit Cards – Q&A for Merchants Mastercard follows a similar structure.3Mastercard. What Merchant Surcharge Rules Mean to You The idea behind all of this is that the surcharge offsets your cost; it isn’t supposed to become a profit center.
Debit and Prepaid Cards Are Off-Limits
You cannot surcharge debit card or prepaid card transactions, period. This is true even when the customer runs a debit card as “credit” at the terminal. What matters is the card’s underlying type, not the routing chosen at checkout.
The prohibition sits in the card network rules themselves.4Visa. Surcharging Credit Cards – Q&A for Merchants It’s reinforced by federal law: the Durbin Amendment to the Dodd-Frank Act, at 15 U.S.C. ยง 1693o-2, already caps the interchange fees large banks can charge on debit transactions at levels well below credit card rates.5Office of the Law Revision Counsel. 15 USC 1693o-2 – Reasonable Fees and Rules for Payment Card Transactions Visa has been known to send mystery shoppers to catch merchants surcharging debit cards or exceeding the cap. A single mistaken surcharge on a debit transaction can mean refunding the fee and drawing an audit from your processor. Repeat violations can end your card acceptance entirely.
Cash Discounts and Convenience Fees as Alternatives
Merchants in ban states, and plenty of merchants elsewhere who’d rather skip the compliance load, use cash discount programs or convenience fees instead. The distinction between these and a surcharge is easy to blur and easy to get wrong.
Cash Discounts
A cash discount reduces the posted price for customers paying cash. The posted or advertised price has to be the credit card price. If your shelf tag says $10 and the register rings a credit card customer up at $10.30, that’s a surcharge no matter what the signage calls it. A real cash discount posts $10.30 and takes it down to $10 for cash. Federal law bars card networks from restricting your right to offer cash discounts, and the discount has to be available to everyone and clearly disclosed.
Convenience Fees
A convenience fee is something different. It applies when you offer an alternative payment channel that isn’t your usual way of taking money. A utility that normally bills by mail but will accept a credit card over the phone can charge a convenience fee for using that phone channel. The fee is for the alternative channel, not for the credit card itself. You generally can’t charge a convenience fee on a face-to-face sale, and you can’t layer one on top of a surcharge. Mixing these up is one of the fastest ways to pull a network compliance review.
Disclosure: What You Have to Tell Customers
In-Store
Physical retailers have to post a notice at the entrance stating that a surcharge applies to credit card purchases, and a second notice at the point of sale, whether that’s a sign at the register or a message on the terminal screen.4Visa. Surcharging Credit Cards – Q&A for Merchants Both have to be visible to a reasonable customer. A laminated card taped under the counter doesn’t count.
On the receipt, the surcharge appears as its own line item showing the dollar amount. A $50 purchase with a 2.5% surcharge should print as a $50 subtotal, a $1.25 surcharge line, and a $51.25 total. Rolling the surcharge into the item price without breaking it out is treated as deceptive pricing.
Online
For e-commerce, you have to disclose the surcharge in descriptive text before the customer reaches the final checkout step.4Visa. Surcharging Credit Cards – Q&A for Merchants The digital version of the entrance sign is a notice on the product or cart page, not a line buried in your terms of service. The surcharge still has to appear as a separate line in the order summary and on the emailed receipt. The actual-cost cap and the debit/prepaid prohibition apply online exactly as they do in a store.
What Happens If You Get It Wrong
Penalties come from several directions, and the one that closes businesses isn’t a government fine.
- Card network enforcement is the serious threat. Visa and Mastercard can flag you for non-compliance, warn you, and ultimately terminate your processing agreement. Losing the ability to accept credit cards is an existential problem for most businesses, and the networks monitor compliance actively, including through mystery shoppers checking for excessive surcharges and debit card fees.
- State enforcement matters in ban states. Civil penalties vary by jurisdiction and can reach several hundred dollars per transaction, and state attorneys general can bring deceptive trade practices actions when surcharges go undisclosed.
- Consumer chargebacks compound the damage. A customer who wasn’t properly notified can dispute the fee through their card issuer. You lose the surcharge, pay processing fees and chargeback penalties, and a pattern of chargebacks raises your risk profile with your processor, which can mean higher rates or account termination.
Most merchants can absorb a few hundred dollars in state fines. Very few can absorb being pushed to cash-only.
Sales Tax on the Surcharge
Whether sales tax applies to the surcharge itself depends on your state. Some states treat the surcharge as part of the total sales price, so tax is calculated on the purchase plus the surcharge. Others exclude the surcharge from the taxable base. Check with your state’s department of revenue or a tax advisor before you assume the surcharge is tax-free. Under-collect and you’ve created a tax liability; over-collect and you’ve created a refund problem with your customers.