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Merchant fees

Merchant fees are what a business pays to accept card and digital payments: a share for the card-issuing bank (interchange), a share for the card network, and the processor's own charges. Most processors deduct the fee before paying out, so the deposit is smaller than the sale; book the sale at gross and the fee as a deductible expense.

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Last reviewed October 2026

Why merchant fees matter

Merchant fees matter because they quietly shrink every card deposit, and if you record only the amount that hit the bank, you understate both your true revenue and a legitimate deductible expense.

The fee is small on any single sale and large across a year, so the accounting error compounds silently: a business can process hundreds of thousands of dollars in card sales and, by booking only net deposits, never once show what accepting cards actually cost. Getting the fees right is what keeps the top line of your profit-and-loss honest and keeps a real operating cost visible where an owner can manage it.

There is a downstream effect too. Understated revenue distorts every ratio built on it — gross margin, sales tax owed on gross receipts, and any revenue-based benchmark a lender or franchisor asks for. When the top line is wrong, everything computed from it inherits the error. Booking fees correctly is not bookkeeping fussiness; it is what makes the rest of the financial statements trustworthy.

What a merchant fee is made of

Every card payment pays three parties, even when the statement shows a single rate. Your customer's card-issuing bank receives interchange, the card network takes its own share, and the processor that moves the money adds its charges on top.

Visa describes interchange reimbursement fees as “transfer fees between acquiring banks and issuing banks” on each Visa transaction, and says merchants do not pay them as such: merchants negotiate and pay a “merchant discount” to their own financial institution, typically a percentage per transaction (Visa: regulations and fees, checked October 2026). Intuit's guide to its processing statements makes the same split from the merchant's side: discount fees are “paid by a merchant to their customer's card-issuing bank and card associations,” while its authorization fee is a per-transaction charge Intuit itself assesses (Intuit: understand your credit card processing statement, checked October 2026). What moves the cost most is how the card is taken. Intuit's statement guide notes that “swiped rates are lower,” and the published rates below show the same pattern: in-person payments are cheapest, and a card number typed in by hand is the most expensive.

What merchant fees cost

Flat-rate processors publish one percentage for each kind of payment. Two examples, read from the processors' own pages in October 2026:

QuickBooks Payments: 2.99% for cards and digital wallets, 2.5% for in-person payments, 3.5% for keyed-in cards and 1% for ACH bank payments; Intuit's page says the rates were accurate as of September 18, 2026 (Intuit: payment rates, checked October 2026).
Square: 2.4% to 2.6% plus 15¢ for in-person payments depending on plan, 2.9% to 3.3% plus 30¢ for online payments, and 3.5% plus 15¢ for manually entered cards (Square: our fees, checked October 2026).

Not every processor works on a flat rate. A merchant account with negotiated pricing passes the interchange and network costs through and adds the processor's margin, so its monthly statement carries many separate rate lines instead of one. Whatever the model, a statement can also carry charges that aren't tied to a single sale: monthly or account fees, per-transaction authorization fees, chargeback fees, and in some contracts compliance, gateway or terminal charges. Each is the same kind of cost and belongs in the same merchant-fee expense account, booked on the date it is deducted or billed.

Chargebacks need two lines. QuickBooks Payments, for one, charges $25 per chargeback and doesn't return that fee even when you win the dispute (Intuit: respond to a chargeback, checked October 2026). Book the fee to merchant fees and the reversed sale against the income it came from, so the payout still ties to the processor's report.

Why the deposit never equals gross sales

Merchant fees

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A $1,000.00 gross sale, less a $30.00 processor fee, deposits $970.00 into the bank. Revenue is still booked at the full $1,000.00 gross, and the $30.00 fee is booked separately as an expense — not netted out of revenue. Figures are illustrative, not a stated processor rate.

A card sale splits three ways — the gross sale, the processor fee taken out, and the net payout that lands in the bank — and the fee is booked as an expense, not subtracted from revenue. Figures are illustrative, not a processor's stated rate.

The deposit never equals gross sales because the processor keeps its fee before paying you: the gap between a day's card sales and the deposit that lands is the processing fee — money you spent to get paid, not money that disappeared.

This single fact is the source of most merchant-fee confusion: owners see the smaller deposit, assume it is the sale, and record it as such. A few processors can work the other way round — QuickBooks Payments, for example, can record fees separately from the payments, so they show up as their own withdrawals on the bank statement. Then the deposit equals the sales, and the fee withdrawal is booked to the same expense account.

Read the figure left to right: the gross sale is what the customer paid, the processor fee is what it cost you to accept the card, and the net payout is what actually reached the bank. The right side of the figure is the part most books get wrong — revenue stays at the full gross amount, and the fee lands on its own line as an expense. Collapse those two into a single net number and you lose the ability to answer two ordinary questions: how much did we sell, and how much did it cost us to get paid.

How to book merchant fees as an expense

Book the full sale as revenue and the fee as a separate expense — never record only the net deposit. Recording net folds two distinct facts into one figure and quietly erases a deduction you are entitled to take.

The correct entry always has two parts — revenue at the gross amount, and a merchant-fee expense for the amount the processor withheld — which in practice means posting each deposit with at least two lines. One line credits your income account for the gross sale; a second line records the processor's fee against a dedicated expense account — commonly named Merchant Fees, Payment Processing Fees, or Bank Charges — so the two lines net to the amount that actually reached the bank. The fee is an ordinary business expense, the same category as other costs of doing business under IRS Publication 334, Tax Guide for Small Business, which calls an expense ordinary when it is “common and accepted in your field of business” and necessary when it is “helpful and appropriate for your business,” and lists bank fees among the other expenses you can deduct (2025 edition, checked October 2026); but a deduction only counts if it is recorded, and fees hidden inside net deposits are never recorded at all. Keeping these fees on their own expense line, rather than blending them with general bank service charges, also tells an owner month to month exactly what accepting cards costs the business.

The clearing-account method in QuickBooks

The clearing-account method routes each sale through a holding account so gross revenue lands first and the fee is deducted when the payout is recorded — keeping revenue and fees on separate lines instead of tangled together.

It is the cleanest way to make a bank deposit that matches the processor's net payout while still booking revenue at gross. The built-in holding account for this in QuickBooks Online is Undeposited Funds (also called Payments to Deposit in Intuit's chart-of-accounts help, checked October 2026); a manually created bank-type or other-current-asset Clearing account does the same job. Sales post to that account at their full gross value. When the processor's payout arrives, you record it through + New → Bank deposit, select the sales being settled, and then add one more line on the deposit for the processor's fee as a negative amount coded to the merchant-fee expense account. The deposit total then equals the net payout that actually hit the bank, the clearing account zeroes out, revenue stayed at gross, and the fee is sitting in expenses where it belongs. If you use QuickBooks Payments, QuickBooks records the fee for you on qualifying transactions; the same discipline still applies when you reconcile. Intuit documents the third-party version step by step in its help article on entering a bank service fee while using a third-party merchant service (checked October 2026). We use this same clearing-account discipline in every engagement — it is part of our methodology.

Booking a processor's payout in QuickBooks, step by step

For a third-party processor in QuickBooks Online, these are the steps in order, from Intuit's articles on third-party merchant fees and on recording bank deposits (checked October 2026).

Create the fee account once. In All apps → Accounting → Chart of accounts, select New, choose Expenses as the account type and Bank Charges as the detail type, and give it a plain name such as Merchant fees — Intuit's own setup for a fee account. Most businesses keep it with operating expenses; if you would rather see gross margin after the cost of getting paid, a cost-of-sales account works too. Choose once with your accountant and keep it consistent.
Record each sale to Undeposited Funds. Select + Create → Receive payment, tick the invoice it pays, set Deposit to to Undeposited Funds and select Save and close. Sales receipts work the same way.
Open a bank deposit when the payout lands. Select + Create → Bank deposit, choose the bank account, and tick the payments the processor's payout report says it settled.
Add the fee as a negative line. Under Add funds to this deposit, enter the processor in Received from, choose your fee account, and enter the fee as a negative amount — Intuit's example is –.50 for a 50-cent fee.
Check the total, then save. The deposit total must equal the amount on the bank statement to the cent. If it doesn't, a sale, a refund or a fee is missing from the payout report you are working from.
Match, don't add, the bank-feed deposit. When the payout downloads, match it to the deposit you just recorded; adding it as new income counts the same sales twice.

If you use QuickBooks Payments, Intuit says QuickBooks Online “automatically records deposits and fees deducted” and puts payments into Undeposited Funds as soon as you process them. To change the accounts it uses, go to Settings → Account and settings, open the Payments tab and choose the accounts in the Chart of Accounts section; Intuit's advice is to make the deposit account the one received payments really go to (Intuit: record QuickBooks Payments deposits and fees, checked October 2026). In QuickBooks Desktop the same choice sits under Banking → Record Merchant Service Deposits → Change your deposit settings, in the Fees account dropdown.

Passing the fee to the customer

There are two ways to pass the cost on, and both come with rules. The simpler one is a service-fee line on the invoice: Intuit's method is to create a service item for the fee and add it in the Product or service column, and it suggests telling customers about the fee when you send the invoice (Intuit: charge a service fee, checked October 2026).

The other is a card surcharge. QuickBooks Payments can add one to online invoice payments under Settings → Account and settings → Sales → Invoice payments, with Percentage based surcharging switched on. Intuit's article lists the limits: the surcharge must not exceed your actual cost of acceptance, it must be a percentage rather than a fixed fee, debit and prepaid cards “can't be surcharged under any circumstances,” it must be disclosed before the customer pays and shown as its own line on the receipt, and it is prohibited in Connecticut, Maine, Massachusetts and Puerto Rico, with other states adding conditions (Intuit: add a surcharge to invoice payments, checked October 2026). Visa separately requires merchants to notify their acquirer 30 days before they begin surcharging. Check your processor's and your state's current rules before you turn it on. In the books, a surcharge is income — QuickBooks deposits it into the income account you choose — so the fee you pay stays a full expense rather than being netted against it.

How Stripe, Square, and PayPal report fees

Stripe, Square, and PayPal all deduct their fee before depositing and report the gross sale, the fee, and the net payout on every settlement — which is exactly why reconciling their payouts to your bank is its own deliberate step.

Each processor batches many individual sales into a single bank deposit, so the number on your bank statement rarely matches any single invoice. The processor's own report is the bridge: it breaks a payout back down into the gross sales it settled and the fees it withheld, and that breakdown is what you post to QuickBooks. Published rates change and vary by plan, card type, and volume, so the rates quoted above are a guide to scale, not a substitute for your statement — always read the fee from the processor's actual report, never from a number you remember. The mechanics differ enough per platform that we cover them individually: see reconciling QuickBooks to Stripe and reconciling QuickBooks to Square.

Common merchant-fee mistakes

Most merchant-fee errors trace back to one root cause: treating the bank deposit as the sale. The recurring mistakes are narrow and predictable.

Booking the net deposit as revenue. The single most common error. Revenue is understated by the fees, and the deduction disappears.
No dedicated fee account. Fees scattered into miscellaneous expense, or lumped with bank charges, so no one can see what card acceptance actually costs.
Double-counting sales. Recording the invoice and then also recording the full processor deposit as new income — inflating revenue on the other side.
Never reconciling the payouts. Trusting the bank feed to match automatically, so batched payouts and their fees drift out of agreement with the processor's report.
Ignoring refunds and chargebacks. These reverse or reduce payouts and carry their own fee treatment; left unrecorded, they quietly break the tie-out.

Every one of these mistakes surfaces in the same place: a cleanup. When a bookkeeper inherits a file where card income was booked at net, the fix is to rebuild revenue at gross, split the fees into their own account, and reconcile each processor's payouts back to the bank for the period in question. That is slow, careful work — but it is what restores a real revenue number and recovers a deduction the business had been leaving on the table. The discipline that prevents it is simple and permanent: book gross, expense the fee, reconcile the payout, every month. If you are not sure which side of that line your books are on, a free QuickBooks review checks how card income and fees were recorded.

Where this shows up

Questions about merchant fees

Why is my deposit less than my sales?

Because the payment processor takes its fee before paying you. A day of card sales arrives in your bank as a smaller number, and the gap is the processing fee — money you spent to accept the payment, not money that vanished.

Should I record the deposit or the full sale?

Record the full sale as revenue and the fee as a separate expense. Recording only the net deposit understates both your revenue and a deductible business expense, and it makes the account impossible to reconcile cleanly against the processor's report.

Are merchant fees tax-deductible?

Merchant and payment-processing fees are an ordinary business expense, deductible like other costs of doing business — but only if they are actually booked. When fees are buried inside net deposits, the deduction is silently lost. IRS Publication 334 describes deductible expenses as ordinary and necessary and lists bank fees among them; confirm the treatment of your fees with your tax preparer.

What account do merchant fees go in?

Most books use a dedicated expense account — commonly named Merchant Fees, Bank Charges, or Payment Processing Fees — under operating expenses. Keeping them on their own line, rather than lumped with bank service charges, makes the cost of accepting cards visible month to month. In QuickBooks Online, Intuit's setup for a fee account is account type Expenses with the detail type Bank Charges.

How do I record Stripe or Square fees in QuickBooks?

Both report the gross sale, the fee, and the net payout on every deposit. In QuickBooks you book the gross to revenue and the fee to an expense account so the two lines net to the amount the processor actually deposited. Reconciling each payout to the bank is its own step.

How much are merchant fees?

It depends on the processor and how the card is taken. The published flat rates we checked in October 2026 ran from 2.4% to 3.5% of each card payment, plus a fixed charge per payment at some processors: QuickBooks Payments lists 2.99% for cards and digital wallets, 2.5% in person and 3.5% keyed in, and Square lists 2.4% to 2.6% plus 15 cents in person, depending on plan. Your own statement is the only number to book.

What is interchange?

Interchange is the part of the fee that goes to your customer's card-issuing bank. Visa describes interchange reimbursement fees as transfer fees between the acquiring bank and the issuing bank on each transaction. The merchant pays it indirectly, inside the merchant discount its own processor or bank charges.

Where do I change the account merchant service fees post to?

For QuickBooks Payments in QuickBooks Online, go to Settings, then Account and settings, open the Payments tab and choose the accounts in the Chart of Accounts section. In QuickBooks Desktop, go to Banking, Record Merchant Service Deposits, Change your deposit settings, and pick the Fees account. With a third-party processor you choose the account on each deposit's fee line.

How do I enter a third-party merchant fee so the deposit matches the bank?

Record the customer payments to Undeposited Funds, then create one bank deposit for the payout. Tick the payments it settled, and under Add funds to this deposit enter the processor, your fee expense account and the fee as a negative amount. The deposit total then equals what the bank received.

Can I charge customers the card fee?

Sometimes. You can add a service-fee item to an invoice, or turn on QuickBooks Payments surcharging for online invoice payments, but card-network and state rules apply: the surcharge can't exceed your cost of accepting the card, debit and prepaid cards can't be surcharged, it must be disclosed before the customer pays, and Intuit lists Connecticut, Maine, Massachusetts and Puerto Rico as prohibited. Check the current rules before you start.

How do I record a chargeback?

Book the reversed sale against the income it came from and any chargeback fee to your merchant-fee account, dated when the processor took the money. QuickBooks Payments charges a $25 chargeback fee that isn't returned even if you win the dispute, so a won case brings back the sale amount but not the fee.

Merchant fees

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