Credit Card Fees in QuickBooks: Record Credit Card Processing Fees in QuickBooks Online

Three different things get called a credit card fee, and each one is booked a different way. Getting the category right at this stage is what keeps the profit and loss honest and the reconciliation clean.

The one that causes real damage is the first row. A merchant fee never appears as its own transaction in your bank feed. The processor takes it before sending the money, so all your bank feed ever sees is a deposit that is slightly too small to match the invoice. If you force the match, you have quietly understated both your income and your expenses by the same amount every single time you take a card.

Record the invoice payment at full value, then subtract the fee inside the deposit. QuickBooks Online handles this with the Add funds to this deposit panel, which lets a deposit contain a negative line.

1. Receive the payment against the invoice for the full invoice amount. Set Deposit to to Undeposited Funds (also labeled Payments to deposit) rather than the checking account.
2. Go to + New > Bank Deposit and pick the checking account the money landed in.
3. Under Select the payments included in this deposit, tick the customer payment you just recorded.
4. Scroll to Add funds to this deposit. In Account choose your merchant fee expense account, and enter the fee as a negative number, for example -2.90.
5. Check that the deposit total now equals the exact amount the processor sent, then Save and close.
6. In the bank feed, match the deposit rather than adding it as a new transaction.

Batch deposits work the same way. If the processor settled twelve sales in one nightly payout, select all twelve payments and add a single negative fee line for that day's total fees. You do not need a fee line per sale, and splitting them out that finely usually makes reconciliation harder rather than easier.

The logic is identical, the screen is different. In QuickBooks Desktop, receive the payment in full to Undeposited Funds, then open Banking > Make Deposits. Select the payments, and on the first blank line underneath them enter your merchant fee expense account with the fee as a negative amount. The Deposit Total at the bottom right will drop to the net figure the processor actually wired. Save, and the deposit will match the bank statement line during reconciliation.

Desktop users importing statements should note that Web Connect reads only .qbo files. A PDF from the processor or the bank has to be converted before Desktop will take it.

An expense account, never a reduction of income. Most bookkeepers create a dedicated account so the cost of accepting cards is visible as its own line rather than buried in a general bucket. In QuickBooks Online the account type is Expenses and the detail type is usually Bank Charges.

A common question is whether merchant fees belong in cost of goods sold. For most service businesses they do not, because the fee is a cost of getting paid rather than a cost of producing what you sold. Some retail and restaurant operators do put them in COGS to get a truer gross margin per sale. Either treatment is defensible as long as you pick one and stay consistent, since flipping between them makes year over year margin comparisons meaningless.

It depends on how the card is taken, which plan you are on, and when your Payments account was opened, and Intuit has repriced more than once. Published third party summaries currently disagree with each other by a tenth of a percent or more, so treat any rate you read online as a ballpark and confirm your own.

• Card present (swiped, tapped or dipped on a reader) is the cheapest tier, generally quoted around the mid 2 percent range.
• Invoiced (the customer pays a card not present online invoice) sits higher, generally quoted near 2.9 to 3 percent.
• Keyed in (you type the card number) is the most expensive tier, generally quoted around 3.4 to 3.5 percent.
• ACH bank transfer is charged at roughly 1 percent. Whether that 1 percent is capped per transaction depends on how old your account is, and older accounts were grandfathered onto a cap that newer ones do not get.

Several tiers also carry a small flat per transaction amount on top of the percentage. Rather than trusting a number from a comparison article, read your own rate off your own statement.

To find it, sign in to the Merchant Service Center, open the Activity & Reports menu and choose All Statements. Statements are posted within roughly the first ten business days of each month, they go back up to 24 months, and they download as PDFs. That statement is the authoritative record of what you were actually charged, broken out by tier, and it is what you should reconcile against. If you process more than a couple of thousand dollars a month it is also worth asking Intuit directly about volume pricing, which is not published.

Those monthly merchant statements are PDFs, which is exactly the format QuickBooks will not import. Converting them to .qbo with the tool at the top of this page gets a year of fee history into the books in one pass instead of keying it line by line.

A payment to your credit card company is a transfer, not an expense. The money moves from your checking account to your credit card liability account, which reduces what you owe. It is not a new cost, because the cost was already recorded when you made each individual purchase on the card.

Categorizing the card payment as an expense is the second most common credit card mistake in QuickBooks, and it double counts every dollar: once when you bought the item, again when you paid the bill. In the bank feed, use Record as transfer and point it at the credit card account. If you have been doing it the other way for months, the giveaway is a credit card balance that keeps growing on the balance sheet while the payments never seem to reduce it.

These are the easy ones, because unlike merchant fees they do appear as their own line on the statement and in the bank feed. Each is entered as an expense directly in the credit card account register, which increases the balance owed and posts the cost to the profit and loss.

1. Open the credit card account from the chart of accounts and choose Account history, or find the charge in the bank feed.
2. Enter the charge with the card issuer as the payee.
3. Category: Interest Expense for a finance charge, Bank Charges for an annual fee, late fee or cash advance fee.
4. Save. The fee now sits in expenses and the card balance reflects it, so the account will still reconcile to the statement.

Interest is worth splitting out rather than lumping into a general bank charges account. It is a separate line on the tax return, and if you ever need to show a lender or an accountant what your cost of borrowing actually is, having it isolated saves an afternoon of digging.

Almost always because a processing fee was netted out and never recorded. A $500 invoice paid by card arrives as roughly $485, so QuickBooks sees a $500 open invoice and a $485 deposit and refuses to match them cleanly.

The fix is the negative deposit line described above, not editing the invoice down to $485. Reducing the invoice destroys the audit trail, misstates revenue, and will not agree to what you told the customer they owed. Work through the possibilities in this order:

• A processing fee was netted out and not booked. This is the usual answer.
• The payout was a batch covering several invoices, so one deposit legitimately covers many payments.
• A refund or chargeback was offset against the same payout, shrinking it further.
• The payment went straight to the bank account instead of Undeposited Funds, so there is nothing left to group into a deposit.

Reconcile against the processor statement, not against your memory of what the rate should be. Pull the monthly statement from the Merchant Service Center, total the fees it lists, and compare that to the balance of your merchant fee expense account for the same period. The two should agree within rounding.

When they do not, the gap is nearly always one of three things: a payout at the end of the month that settled in the next period, a fee taken as a separate monthly debit rather than netted from a deposit (gateway or terminal subscriptions often work this way), or a chargeback and its associated fee that was booked against income instead of expense. Checking those three in order resolves most differences in a few minutes.

Sometimes, and it is more restricted than most business owners expect. Card network rules govern surcharging, several states limit or regulate it, and the rules differ between credit cards and debit cards, with debit surcharging prohibited outright. Requirements around disclosing the surcharge before the sale and capping it are also common.

Check the current network rules and your own state's position before you turn surcharging on. In the books, a surcharge you collect is additional income on the invoice, so it does not cancel out the fee expense automatically. You will still see the full merchant fee as an expense and the surcharge as revenue, which is the correct presentation.

Are credit card processing fees tax deductible? Yes. Merchant processing fees are an ordinary and necessary business expense, which is exactly why booking them properly matters. If you net the fee against income instead of expensing it, your revenue and your deductions are both understated, and while the bottom line happens to come out the same, the return no longer reflects what the business actually did.

Should credit card fees be an expense or COGS? Expenses for most businesses, because the fee is a cost of collecting payment rather than a cost of the goods themselves. Retail and hospitality operators who want gross margin to absorb the true cost per sale sometimes use COGS instead. Both are acceptable, consistency is what matters.

Does QuickBooks record processing fees automatically? If you use QuickBooks Payments, fee handling is largely automated and the deposit arrives already reconciled with the fee split out. If you use Stripe, Square, PayPal or an outside processor, nothing is automatic and you have to record the fee yourself with the negative deposit line.

What is the difference between a credit card charge and a credit card payment? A charge is a purchase made on the card and it is an expense. A payment is money sent to the card issuer and it is a transfer that reduces the liability. Treating a payment as an expense double counts every purchase.

Where do I see all my credit card fees in QuickBooks? Run a Profit and Loss report, then click into the merchant fee or bank charges account to see every fee transaction in the period. If the total looks low against your sales volume, fees are probably being netted into deposits somewhere instead of recorded.