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

Surcharge: An additional charge, fee, or tax that is added to the cost of a good or service beyond the initially quoted price.

Investopedia / Xiaojie Liu

What Is a Surcharge?

A surcharge is 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. 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. Surcharges are typically added at the final stage of purchase; when the buyer pays for the good or service.

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, such as 5%.

The listed 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) or the surcharge appears as a separate line item on your receipt.

Some surcharges are simply baked into the nature of the business. For example, restaurants may intentionally not serve condiment packets, as their business model may try to reduce costs by not handing out additional resources for free.

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)

Most surcharges are legal, though some states are taking action and disallowing certain types of surcharges. For instance, 2021 legislation out of Colorado imposed limits on how much a surcharge could be in certain cases.

How to Avoid Surcharges

There are a number of steps a consumer can take to avoid surcharges, regardless of the type or situation in which it occurs. For financial surcharges, many merchants add a surcharge if you pay with a credit card, especially if it's a small transaction. To avoid this surcharge, you can use a debit card or pay in cash.

Some surcharges arise due to being out of network. For example, if you use an ATM that's not affiliated with your bank, you may be charged a surcharge. To avoid this, understand the limitations of the service and ask your bank or other network about your options. Always ensure receiving this information back in written form to substantiate any future confusion.

Surcharges often arise when you travel, such as an airline surcharge for checked baggage, roaming surcharges for using data in remote or international locations, or resort surcharges for additional amenities. Consider planning ahead, being mindful of where these charges may arise, and act accordingly by intentionally deciding against using companies with surcharges.

Lastly, always remember to read the fine print and terms and conditions. Regardless of what a customer service representative may tell you, you are bound to any agreement you have signed. This agreement will directly identify areas where you may face additional charges, as you should use it not only as a planning tool but as a reference for future activity.

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.

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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  1. Greater Alliance Federal Credit Union. "What is an ATM Surcharge Fee?"

  2. Journal of Accountancy. "Ask the Expert: Surcharging; Considering Credit Card Surcharges."

  3. Colorado General Assembly. "Credit Transaction Charge Limitations."

  4. JBN / Giant Communications. "What is the Broadcast TV Surcharge on My Cable Bill?"

  5. 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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