Surcharge: What It Is, How It Works, Types, and Examples

What Is a Surcharge?

The term surcharge refers to an additional charge, fee, or tax that is added to the cost of a good or service beyond the initially quoted price. A surcharge is often added to an existing tax and is not included in the stated price of the good or service. The amount of a surcharge varies and can be a fixed amount or a percentage of This charge may be imposed because of a governing body's need for additional revenue or to defray the cost of increased commodity pricing.

Key Takeaways

  • A surcharge is an additional charge or tax that a company adds to the cost of a good or service.
  • Surcharges are normally added to the price of goods and services at the point of sale on behalf of the government.
  • Surcharges allow businesses to indirectly pass costs on to the consumer by listing a charge separately from the cost of the good or service.
  • These fees may be fixed amounts or a percentage of the purchase price.
  • Many industries, including travel, telecom, and cable, will add surcharges to offset the cost of higher prices, such as fuel, or regulatory fees imposed by the government.

How Surcharges Work

Surcharges are additional fees and/or taxes that consumers are required to pay when they buy certain goods and services. They are added to the purchase price at the point of sale. So when you make a purchase, the seller adds the surcharge at the register.

Surcharges may be set at specific dollar amounts, such as $5 per transaction. They may also be based on a percentage of the total price—usually a small fraction of the cost. The surcharge is only added to the retail price, which means it is not a taxable amount. It appears as a separate line item on your receipt.

Many entities, including governments, businesses, and service professionals assess surcharges. For example, taxi drivers may add a fuel surcharge of $1 when gas prices increase. The cost of some products and services does not include the added surcharge. Instead, the calculated fee is assessed upon acceptance or purchase of the item and appears in the contract or sales and purchase agreement (SPA).

$3.2 billion

The estimated value of 911 fees collected by states and other reporting jurisdictions in 2020. These fees are charged by phone companies, including wireless and those that provide landlines, to their customers. These fees pay for emergency services, although a number of jurisdictions used funds to pay for non-emergency services and public safety programs.

Bank and Credit Card Surcharges

The automated teller machine (ATM) fee is one that many consumers know very well. This surcharge is most often levied by the bank or other institution that owns and operates the machine. An ATM fee is shown as a set dollar amount per transaction. Most ATM providers waive fees for customers of the sponsoring ATM.

Some businesses have added surcharges to compensate for the costs associated with accepting credit cards. Another name for these fees is a checkout fee. This additional fee may be a specific dollar amount or a percentage of the total price of the goods or services purchased.

Examples of Surcharges

Many industries, such as the telecommunications and cable industries, regularly use surcharges to offset some of the costs imposed on businesses through local, state, or federal regulations. When these costs increase, companies may adjust surcharge amounts rather than the price of the goods they sell. The fee is still passed on to the consumer, but in a more indirect fashion.

If regulations raise the burden on a company by $1 per customer, the company may increase its regulatory recovery fee by $1. In this way, the company avoids having to absorb the loss or the full amount of the government fee, efficiently passing it on to the consumer.

Examples of surcharges include regulatory recovery fees added by cable companies to their customer's bills. These are imposed to offset the burden of certain service fees imposed by various government entities. They also apply fees for sports programming to offset the premium the cable provider pays for the ability to broadcast the events.

Other examples include:

  • Fuel surcharges
  • Emergency service fees on landline and wireless phone services
  • Hazardous waste disposal fees at the veterinarian's office
  • Disposal and handling fees for electronics
  • Minimum transaction fees (usually to use credit or debit cards)

How Do Surcharges Work?

Surcharges are additional fees or taxes that are added to the purchase price of goods and services. Depending on the good or service, a surcharge can be flat fees or a percentage of the purchase price. It is added at the time of purchase by the seller or service provider. Surcharges are imposed by businesses, governments, service providers, and service professionals.

What Is a Broadcast TV Surcharge?

Television networks impose broadcast TV surcharges on cable providers to carry their signals over the airwaves. The fee is negotiable between networks and cable companies, and is allowed by federal law. Rather than increase the price of the service, the surcharge is passed on to cable company customers each month.

What Are Some Examples of Surcharges?

Examples of surcharges include ATM fees, fuel surcharges, broadcast TV surcharges, disposal fees, handling fees, hazardous waste fees, filing fees, tips and gratuities, processing fees, convenience fees, and checkout fees.

Which States Allow Credit Card Surcharges?

Credit card surcharging is a fee structure that allows credit card companies to charge consumers to process transactions. Although surcharging isn't illegal across the United States, there are certain jurisdictions where companies can't impose these fees on their customers, including Connecticut, Massachusetts, and Puerto Rico. Anti-surcharging laws are limited or cannot be enforced in California, Florida, Kansas, Maine, New York, Oklahoma, Texas, and Utah. In 2017, the Supreme Court struck down New York State's prohibition on credit card surcharges, ruling that fees fall under free (and protected) speech for credit card companies.

The Bottom Line

Many people pay surcharges without the blink of an eye. But not everyone understands what they are and why they're imposed. Surcharges are fees that are tacked onto the price of goods and services. Surcharges are either a fixed amount or a percentage of the purchase price. They come in many forms, including service fees, handling fees, disposal fees, and processing fees. They may be imposed by the service provider or another entity, including the government. Whether you like them or not, there's no way to avoid them. But understanding what they are may be able to help you be comfortable with the extra cost.

Article Sources
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  2. Stax. "What States Can Charge the Credit Card Surcharge? A Complete List of Places Where Surcharging is Legal (and Where It’s Not)."

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