Are credit card processing fees tax deductible?

Are credit card processing fees tax deductible? For most businesses, yes: the fees you pay to accept cards on business sales are a cost of running the business, and both the IRS and the CRA allow deductions for business costs that meet their tests. The catch is in the bookkeeping. Your Form 1099-K reports gross card sales with no fees taken out, so the fees only reduce your taxable income if you record them as an expense.

This guide explains what the IRS and CRA say about business expenses, which lines on a merchant statement count as processing costs, a worked example of the most common mistake, and what to keep for your records. We're a payment processor, not your accountant, so we'll stick to what the official pages say and flag where a professional should make the call. Rules are as of October 2026.

Are credit card processing fees tax deductible in the US?

The IRS test for any business expense is whether it's ordinary and necessary. In the IRS's words, an ordinary expense is one that is common and accepted in your industry, and a necessary expense is one that is helpful and appropriate for your business.

Card processing fees fit that description for most businesses that take cards. If your customers expect to pay by card, accepting cards is hard to call anything but common and accepted, and paying a processor is how that money reaches your account. So the fees are normally booked as an expense, alongside rent and software.

Two limits keep this from being automatic. First, the fee has to relate to business sales. Fees on a personal card or a personal payment app transfer aren't business costs. Second, how a cost is deducted depends on what it is: a monthly fee and a terminal you buy outright may be treated differently. Your accountant decides the line and the timing; your job is to have clean records of every fee.

Which credit card processing costs count?

Everything your processor charges you to accept cards on business sales is a processing cost. On a typical statement, that falls into a few groups. Our guide on how to read a merchant statement shows where each one sits.

The chargeback row trips people up. When a customer wins a dispute, you lose the sale and usually pay a fee on top. The fee is a processing cost; the lost sale is a reduction in revenue. Your accountant will handle them differently, so keep them in separate columns. Our chargeback fee guide explains both.

How should you record processing fees in your books?

Record sales at the gross amount and fees as their own expense, every month. How you get there depends on how your processor collects its fees, and your statement will tell you which kind you have.

If your processor deducts fees from each day's deposit (daily net funding):

1. Record the month's gross card sales from the statement summary, not from your bank.
2. Record refunds and chargebacks from the statement as their own lines.
3. Record the month's total fees from the statement as an expense.
4. Check that gross sales, minus refunds, chargebacks, and fees, equals the card deposits in your bank for the month, give or take a day of timing at each end.

If your processor deposits the full amount and takes fees in one debit early the next month (monthly billing):

1. Record gross sales, refunds, and chargebacks the same way.
2. Match the single fee debit in your bank to the fee total on the statement it belongs to, which is usually the previous month's.
3. Record that total as an expense. Whether it belongs to the month the fees relate to or the month you paid them depends on your accounting method, which mostly matters for the December statement, so ask your accountant once and stick with the answer.

Either way, the statement is the source and the bank is the check. A bookkeeper who works only from bank deposits will see net figures and miss the fees as a separate number, which is exactly how the first mistake in the next section happens.

Why doesn't your 1099-K subtract processing fees?

Because it's a gross figure by design. The IRS says the gross amount on Form 1099-K doesn't include adjustments for fees, credits, or refunds. And for reporting, the IRS tells sole proprietors to include the full gross amount from the form on Schedule C and then make the appropriate offsets.

That creates two opposite mistakes. Say a dental office in Tulsa has $640,000 in box 1a, refunds $5,200 to patients' cards during the year, and pays $14,720 in processing fees ($11,050 interchange, $1,190 network fees, $2,480 processor charges). Its processor deposits daily, net of fees, so the bank shows $620,080.

The first mistake understates income. The second overpays tax. Both come from the same place: nobody reconciled the 1099-K to the statements. Our guide to Form 1099-K walks through that reconciliation box by box.

Are credit card processing fees deductible in Canada?

The CRA's general rule is broad. Its business expenses page says you can deduct any reasonable current expense you paid or will have to pay to earn business income.

The CRA's instructions for the expenses section of Form T2125 add three points that matter here:

• You can't claim the cost of buying capital property as a current expense, which is relevant if you buy terminals outright.
• The expenses you deduct include any GST/HST you incurred on them, minus any input tax credit you claimed.
• You enter only the business part of an expense, because personal expenses aren't deductible.

Which line do card fees go on? The CRA's T4002 guide says you can deduct management and administration fees, including bank charges, that you incur to run your business, on line 8871. The guide doesn't name card processing fees on that line, so ask your accountant where yours belong. A florist in Ottawa with $6,300 in yearly processing fees needs that answer once, then the same treatment every year.

The 1099-K is a US form, but the same bookkeeping logic applies in Canada: record gross sales, refunds, and fees separately, so your statements, deposits, and return all agree. Our guide to credit card fees in Canada explains what those fees are made of.

What about the surcharges you collect?

A surcharge is money your customer pays you, not a fee you pay, so it sits on the other side of your books from processing costs. We won't guess at its tax treatment, because neither the IRS nor the CRA pages above address it. Ask your accountant how to report it, and check with your state or provincial tax authority whether sales tax applies to it.

The card network limits are clearer. Visa caps a US credit card surcharge at the lesser of your merchant discount rate or 3%, with 30 days' notice to your acquirer (Visa). Mastercard's ceiling is the lower of 4% and your average effective merchant discount rate (Mastercard). Neither allows a surcharge on debit or prepaid cards.

In Canada, Visa caps a surcharge at your merchant discount rate, with an absolute maximum of 2.4% (Visa Canada), and Quebec prohibits charging a fee for paying by card (Office de la protection du consommateur). Our surcharging program handles compliance, disclosure, and setup if you decide to add one.

What records prove your processing fees?

Your monthly merchant statements are the main record. Download all twelve every year, plus any annual fee summary your processor offers, and keep them with your 1099-K.

Here's a short checklist:

1. Twelve monthly statements, each showing gross sales, refunds, chargebacks, fees, and deposits.
2. Your Form 1099-K, or each form if you have more than one.
3. Invoices for any terminal you bought, and lease agreements for any you rent.
4. A note of how your processor bills fees: deducted daily from deposits, or debited once a month.
5. Chargeback notices, so lost sales and chargeback fees can be recorded separately.

How long to keep them? In the US, the IRS says to generally keep records that support income or deductions until the period of limitations runs out, generally 3 years from the date you filed. In Canada, the CRA says you generally have to keep records and supporting documents for six years from the end of the last tax year they relate to.

Common mistakes with processing fees at tax time

• Reporting deposits as income and then deducting fees again.
• Reporting the 1099-K gross and forgetting the fees entirely.
• Lumping chargeback losses and chargeback fees into one number.
• Missing fees billed as a separate monthly debit because they never appeared in deposits.
• Missing a terminal lease that's paid to a leasing company instead of the processor.
• Throwing out statements once the year closes.
• Paying PCI non-compliance fees for months because nobody filed the annual questionnaire. Those are avoidable, deduction or not.

When is it worth cutting the fees instead of just deducting them?

Almost always. A deduction lowers taxable income; it doesn't refund the fee. Take the Tulsa dental office. If its combined tax rate on business income were 25% (an example, not a figure for your situation), deducting $14,720 in fees would save $3,680 in tax. The fees would still cost $11,040 after tax.

Now say a better-priced account cut those fees by $2,000 a year. At the same example rate, that's $1,500 more in the owner's pocket after tax, every year. The deduction softens a high fee; it never makes one cheap. Our guides to hidden fees in credit card processing and how to reduce credit card processing fees show where the savings usually hide.

The same logic applies whether you're in the United States or Canada: track the fees for your return, then work on paying fewer of them.

Next step

If you don't know what you paid in processing fees last year, your accountant will ask, and the answer is in your statements. Send us a recent statement for a free statement review and we'll break your credit card processing fees into interchange, network fees, and processor charges, which is useful for your bookkeeping and for spotting what you're overpaying. Or contact us to talk it through with a rep.