We often get asked if it is possible to set up credit card surcharging in a restaurant. The answer is yes! Below you will find a breakdown of how the cardholder and the business owner get charged when a tip is added to a surcharged transaction.

How the Surcharge Is Calculated on a Tipped Check

The 4% is charged to the bill amount, not the total sale with the tip amount. This is the most important part to understand: the surcharge applies only to the original check, and any tip added on top of that is handled separately.

Here is an example on a $100 sale to show how it works step-by-step.

Example:

  • Bill: $100
  • Surcharge (4%): $4
  • Subtotal: $104
  • Tip added: $20
  • Total charged to the cardholder: $124

So in this case, the customer pays $124 — the original bill, the surcharge on the bill, and whatever tip they decide to add.

Because the 4% surcharge for the tip is not taken from the cardholder, the merchant covers the processing cost on the tip portion. This means the deposit they receive will be the $120 minus the 4% charge on the $20 tip ($0.80 fee). The merchant will receive $119.20 before any other standard fees.

Cardholder Breakdown

The following illustrates exactly what the cardholder pays at the point of sale:

CARDHOLDER PAYS:
$100 bill

  • $4 surcharge cardholder pays
    = $104 bill + surcharge
  • $20 tip entry
    = $124 bill + surcharge + tip

This breakdown shows clearly that the customer is never charged a surcharge on the tip, only on the original bill.

Merchant Breakdown

The next part shows how the merchant is charged on their end. Since the surcharge cannot be applied to the tip, the merchant pays a small processing percentage on that tip amount.

MERCHANT PAYS:
$20 tip amount
− $0.77 surcharge merchant pays (3.846% surcharge)
= $19.23 remaining after surcharge on tip amount

What the Merchant Ultimately Receives

Putting all of the pieces together, here is what actually gets deposited into the merchant’s bank account:

TOTAL DEPOSIT TO MERCHANT:
$124 total charge to cardholder
− $4 surcharge drawn back for fees
− $0.77 surcharge drawn back on tip amount
= $119.23 deposited to merchant bank account

This is where the savings become clear. Most of the transaction cost is covered by the surcharge on the original bill, and the merchant only pays a small fee on the tip portion.