If your business accepts credit cards, you’re probably well aware of the high fees associated with processing these transactions. From interchange costs to processor markups, monthly fees, and more, the charges add up fast.
But come tax time, many merchants aren’t sure if their credit card processing fees are tax-deductible.
The short answer is yes—credit card fees are tax-deductible for businesses. But there are some important details you should know to ensure you’re claiming them correctly and maximizing your benefit.
Disclaimer: This information is for reference only. Consult an attorney or accountant for tax advice and confirmation of local laws.
Are Payment Processing Fees Tax Deductible?
Yes, credit card processing fees are generally considered ordinary and necessary business expenses, making them fully deductible for most merchants.
The IRS treats credit card fees the same way as other operational costs that your company pays, including rent, utilities, marketing, or office supplies.
It doesn’t matter whether you’re processing $10,000 or $10 million annually. Card fees represent a legitimate cost of doing business, and therefore, are tax-deductible.
Types of Processing Fees That Are Tax-Deductible
Nearly every fee charged by your payment processor qualifies as a business expense deduction. Here’s what you can write off:
Transaction-Related Fees
- Interchange Fees — Base costs set by the card networks
- Discount Rates — Your processor’s markup on each transaction
- Assessment Fees — Network fees passed through by processors on total volume
- Per-Transaction Fees — Any fixed costs per swipe, dip, or tap
- Authorization Fees — Costs directly associated with verifying each transaction
Monthly and Recurring Fees
- Monthly Statement Fees — Administrative costs your processor charges for reporting
- Gateway Fees — Monthly fees to support your online processing costs
- Equipment Leasing Fees — If you’re renting terminals, POS hardware, or other equipment
- PCI Compliance Fees — For security and compliance
- Other Monthly Fees — Any monthly fee that appears on your credit card processing statement
Equipment and Setup Costs
- Terminal Fees — POS software, card readers, and other hardware used to process payments (may need to be depreciated)
- Setup Fees — Initial costs charged by your processor or POS provider to configure your account
- Software Fees — Any one-time, monthly, or annual fees associated with payment processing applications
Other Miscellaneous Fees
- Chargeback Fees — Costs associated with handling disputed transactions
- Early Termination Fees — Contract cancellation costs
- Fines and Penalties — Imposed by your processor, banks, or card networks for things like non-compliance
How to Claim Credit Card Processing Fees on Your Taxes
Claiming credit card processing deductions on your taxes is pretty straightforward. But proper documentation is crucial.
Sole proprietors filing a Schedule C (Form 1040) can report these fees on Line 17 as “Legal and professional services” or Line 27a “Other expenses.”
Partnerships and S-Corps can include these fees with operating expenses on Form 1065 or 1120S.
C-Corps report credit card fees as an ordinary business expense on Form 1120.
While you don’t need to include receipts or statements when you file your taxes, you do need to properly maintain records of everything. Here are some tips and best practices to follow:
- Keep organized copies of your monthly processing statements
- Maintain clear records of your processor invoices and account activity
- Only deduct fees tied to your business revenue (not personal expenses)
The last one is super important, and where most businesses can find themselves in trouble. You can’t commingle personal and business expenses. Otherwise, you’ll be subject to penalties, fines, potential legal actions, and likely a much higher tax bill.
Tax Deduction Rules For Refunds and Chargebacks
Refunds and chargebacks are often a point of confusion for merchants when it comes to tax deductions. Here’s a simple answer to help you understand how to handle these.
Chargeback fees are tax-deductible business expenses. They’re part of your overall costs associated with accepting credit cards, and you can deduct 100% of those fees.
With refunds, you only pay fees on net income. So you can’t deduct the amounts that are already excluded from gross receipts (any refunded sales).
For example, let’s say you sell a $500 item and then refund that transaction at a later time. You don’t count that $500 as income, so while you can deduct the processing fees (say $3), you won’t deduct the refunded amount. But if you get hit with a $25 chargeback fee on a disputed transaction, you can deduct the $25 as an expense that’s a direct cost of doing business.
Are Credit Card Fees on Business Credit Cards Tax Deductible?
Yes, if you’re using a business credit card to pay for business expenses, any associated fees are generally tax deductible. Examples include:
- Annual fees to keep the card active
- Late payment fees
- Employee card fees
- Interest charges on balances due
The contingency here is that they must be tied to business expenses. Purchases must be ordinary and necessary costs of doing business.
Credit card fees, including late payments and interest, are not tax-deductible on personal expenses.
To avoid any confusion, potential penalties, and accounting headaches, you should use separate credit cards for business and personal expenses.
Common Mistakes Merchants Make (That’s Costing You Money)
Just because payment processing fees are tax-deductible, you still need to report things properly to ensure you’re maximizing your deductions. This doesn’t happen automatically.
These are some mistakes that we commonly see, and they lead to merchants leaving money on the table and missing out on a larger tax refund.
Mistake #1: Only Deducting “Big” Fees
Processing fees may only be a few dollars per transaction, which is easy to overlook. But this can add up to tens of thousands of dollars over the year in deductible expenses. Same goes for the “smaller” gateway charges, equipment costs, or PCI fees. Combined, they total thousands in expenses.
Mistake #2: Poor Documentation
You can’t just use year-end summaries to total your processing costs. Some processors omit certain fees from the reports, so you’ll want to keep copies and organized records every month to show how much you’re actually paying—and then use those numbers when it’s time to itemize deductions.
Mistake #3: Mixing Business and Personal Expenses
Trying to save a few bucks by hiding a personal expense as a business expense isn’t worth it, and it will likely cause you much bigger (and more expensive) problems down the line.
Mistake #4: Ignoring Equipment Depreciation
Terminals, POS hardware, and other equipment can be recorded as assets on your balance sheet and depreciated over time as they lose value. This is another way to save money on taxes, particularly for larger businesses with lots of expensive equipment across multiple locations.
Mistake #5: Overpaying for Processing Fees
We regularly see merchants paying 50-100% more than necessary to process credit cards. You shouldn’t have to rely on tax deductions to fight inflated fees when you could be paying lower rates to begin with. You can still deduct those fees, but paying less means higher profits on your bottom line.
Final Thoughts
Processing fees are a significant expense for most merchants.
Credit card fees are tax-deductible as long as they’re an ordinary and necessary business expense. Individuals can’t deduct credit card fees when filing taxes; only businesses can.
But remember, it’s not just about maximizing your tax deductions on high fees. You should be paying fair rates from the beginning.
Before you focus solely on tax deductions, you should be looking for ways to lower your overall costs to process card payments. Contact our team here at MCC for a free audit to find how much you can save without switching processors.