Surcharge: Definition, How It Works, Types, And Examples

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Surcharge: Definition, How It Works, Types, And Examples

When you purchase something, a surcharge fee is an extra amount that is added to your final bill if you pay through a debit card, credit card, or check in place of cash. The extra amount that you pay is for the extra services from merchants, government regulatory costs, or increased product costs. The surcharge amount you pay can either be a fixed amount or a percentage of your original bill for purchase.

In this article, you will get some general details about what a surcharge is. After defining surcharge and learning why surcharge is changed, we will learn some of the major applications of surcharge. Apart from that, we will also share with you an example to explain the surcharge. Hence, to learn more about surcharges, read on through to the end of the article.

Contents

Surcharge Meaning – What Is A Surcharge?

Surcharge Meaning - What Is A Surcharge

According to Investopedia,

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 surcharge can be a fixed amount, or it can be a percentage of your bill. Mostly surcharges are applied due to extra merchant costs, the government’s additional need for revenue, or to take the costs for increased pricing for commodities.

This extra charge that you pay can be applied to various products and services. You might have to pay this charge in various places, including travel, medical, telecommunications, and more. The enterprises and shops that collect the surcharge subsequently return those charges to the concerned authorities or financial institutions.

Why Surcharge Is Charged?

According to Wall Street Mojo,

Businesses often struggle with balancing the costs of providing services due to accepting payments via a payment platform. Sometimes there are gradual increases in the prices of products they offer or regulatory fees that the government imposes on respective industries.

Hence, you can understand the logic behind charging a surcharge.

Merchants, to offset this additional and indirect costs, charge an extra fee or tax from customers. This payment that customers pay to merchants is called a surcharge. You have to understand here that this charge is an extra one that you will have to pay in addition to the original price of the products and services that you buy. The seller adds the surcharge at the point of sale during the registration process.

How Does A Surcharge Work?

How Does A Surcharge Work

Since the surcharge is added to the retail price on the bill, it is not taxable. It is the money you pay other than the tax. This amount appears as a separate line item on your cash receipt.

There are many entities that assess surcharges. This includes businesses, governments, service professionals, service providers, and more. For example, at times when the gas price increases, a cab driver can add a fuel surcharge of $1 for the passengers.

According to Investopedia,

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.

N.B.: The surcharge is not included in the cost of the service or the product. The entities asses the calculated fee upon the purchase of the item. The surcharge then appears in the contract or sales and purchase agreement (SPA).

Different Applications Of Surcharge

As already explained, a surcharge can be applied to a variety of cases. Here are some of the common applications of surcharge you need to know about:

1. Payment Systems

If a customer pays after purchasing products from a retail shop, the cashier swipes the card of the customer. The POS system of the retail shop automatically charges an additional amount apart from the total payment. This is an example of a surcharge, and it can be up to 4% for a single transaction. However, it does not happen in every case.

2. Medicare

This is an additional fee that patients or their family members need to pay on top of the total amount of medical charges and taxes. However, this surcharge applies only if:

  1. Neither the patient nor their children or spouses do not have the essential healthcare coverage.
  2. The earning of the payer is beyond a specified limit.

3. Fuel Surcharge

This is the charge that carriers charge on basic shipping and freight rates. The carriers charge this payment to cover the costs of extra fuel since there is a continuous fluctuation of fuel prices.

4. Healthcare Coverage For Spouses

Employees who are covered under healthcare insurance from their employers might need to include their spouses under healthcare coverage. In this case, they will need to pay an additional surcharge for the coverage.

5. Surtax

Surtax is a tax that is imposed on top of another tax. This tax is created to fund certain government programs. However, surtaxes are more applicable to people with a higher income range.

Example Of A Surcharge – How Is It Calculated?

Suppose you buy groceries for $200, but the bill comes out to be $206. Once you ask the cashier for the extra $6 that you paid. She explained that an additional 3% surcharge is imposed on people using debit or credit cards to make payments.

The calculation can be explained here:

[$200 + (3% of $200)] = [$200 + $6] = $206.

Bottom Line

Hope this article was helpful for you in getting an idea of what a surcharge is. It is the additional charge you have to pay while you purchase goods and services. This charge is separate from the price that you pay for your purchases. The price you pay can be fixed or a certain percentage of your purchases.

The additional amount that you pay applies to different areas, including payment processing, fuel consumption, Medicare, etc. Do you have further information to add related to the surcharge? Share your ideas and opinions with us in the comments section below.

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