How this instrument works
A payment processor's price has two terms because its costs do. Part of what a card transaction costs the acquirer scales with the amount — interchange, network assessments, and the risk of having to make good on a disputed sale — while another part does not: the authorisation message, the settlement line, the fraud check and the ledger entry cost about the same on a three-dollar sale as on a three-thousand-dollar one. A 2.9% slice recovers the first kind of cost. A flat 30 cents recovers the second.
That second term is why the headline rate is never the rate you actually pay. Divide fee by amount and you get pct + 100 × fixed ⁄ amount, a curve that hugs 2.9% for large sales and climbs steeply for small ones. On the 2.9-plus-30-cents schedule, $1,000 costs an effective 2.93%, $100 costs 3.2%, $10 costs 5.9%, and a $3 sale costs 12.9%. Separate micropayment schedules exist — a higher percentage set against a much smaller flat charge — precisely because that curve makes tiny transfers unworkable on the standard one.
This formula is the whole of the ordinary domestic case and none of the rest. It knows nothing about the surcharge applied when payer and payee sit in different countries, or about currency conversion, which is priced as a spread folded into the exchange rate rather than shown as a separate line. It ignores chargeback charges, the cost of pushing a balance to a bank account instantly rather than waiting, and the gap between a goods-and-services payment and a personal transfer. Enter the schedule that genuinely governs your account and the arithmetic below is exact to the cent.
- Put the gross figure your buyer pays into Amount sent, $ — the full invoice, shipping and tax included, since the percentage is charged on that total.
- Set Percentage fee, % from your own account schedule. 2.9 is the long-standing online default; in-person, cross-border, micropayment and charity rates all differ.
- Enter the per-transaction Fixed fee, $ — 30 cents in US dollars, with each other currency carrying its own flat amount.
- Read Fee charged for what is withheld, and You receive for what actually lands in your balance.
- Divide Fee charged by the amount to get your true effective rate: 3.20 ⁄ 100 is 3.2%, not 2.9%.
Worked example — $100 at 2.9% plus 30 cents
An invoice for $100 goes out and your buyer settles it by card. With Percentage fee, % at 2.9 and Fixed fee, $ at 0.30, the sheet works out 100 × 2.9 ⁄ 100 = $2.90, adds the flat 30 cents, and prints Fee charged as $3.20. You receive reads $96.80. Those figures are exact rather than rounded, which makes this the cleanest case to check the schedule against.
Notice that $3.20 out of $100 is 3.2%, not 2.9%. Three-tenths of a point went missing into the flat charge, expressed as a share of this particular invoice. Run $1,000 through the same schedule and the fee is $29.30, an effective 2.93%; run $10 through it and the fee is $0.59, an effective 5.9%.
Adding $3.20 to the invoice to pass the cost along does not close the gap: $103.20 attracts a fee of $3.29 and leaves $99.91. Landing on exactly $100 needs (100 + 0.30) ⁄ 0.971 = $103.30, which carries a $3.30 fee. Nine cents is nothing on one sale and roughly $90 across a thousand of them.
Questions
Why is my fee 3.2% when the published rate says 2.9%?
Because 30 cents of it never depended on the amount. On a $100 sale the percentage part is $2.90 and the flat part is $0.30, so $3.20 leaves your money — 3.2% of the total. The flat charge is a fixed number sitting on top of a proportional one, so it weighs heavier the smaller the sale gets: 2.93% at $1,000, 3.2% at $100, 5.9% at $10, 12.9% at $3. Your effective rate is always pct + 100 × fixed ⁄ amount, and it only approaches the headline figure on large transactions.
How much do I invoice to receive an exact amount?
Divide, do not add. To end up holding $100 on a 2.9% plus 30-cent schedule, charge (100 + 0.30) ⁄ (1 − 0.029) = $103.30, not $103.20. Adding the fee you calculated on the smaller figure undershoots, because the larger invoice attracts a larger percentage — $103.20 leaves you $99.91. The gross-up line in the formula box does this in one step, and the same shape works for any pair of rates.
Does this cover international payments and currency conversion?
No, and the second one is easy to miss. Cross-border sales normally carry an extra percentage on top of the domestic rate, which you can fold into Percentage fee, % if you know it. Currency conversion is different: the cost is buried in the exchange rate itself as a spread of several percent against the mid-market rate, so it never appears as a fee line and cannot be modelled by this formula at all. Compare the rate you were given against an independent mid-market quote to see what it cost.
Do I get the fee back when I refund a buyer?
Often not, and the answer has changed over time and varies by region, so check the schedule in force on your account. A refund returns the full amount to your buyer, but the processor may keep some or all of what it already took — in which case a $100 sale refunded in full costs you the $3.20 outright. Chargebacks are harsher still, typically adding a separate fixed charge of their own. Neither appears in the arithmetic here.
Is 2.9% plus 30 cents the same at every processor?
The two-term shape is close to universal; the two numbers are not. Flat-rate providers publish a single percentage and flat charge for everyone, while interchange-plus pricing passes through the card networks' own rates and adds a stated margin, which makes the effective cost vary by card type. Rates also split by channel — card-present, keyed, invoiced, in-app — and by account category. Both fields here are editable so you can enter whatever your own agreement states.
Which figure gets reported to the IRS, gross or net?
Form 1099-K reports the gross amount processed, so it shows the $100, not the $96.80 that reached your balance. The $3.20 difference does not disappear; it is recorded separately as a processing cost in your own books. This is why the total on the form routinely exceeds what a payee remembers receiving. The IRS page linked below sets out what the form covers and who receives one.
References
- IRS — About Form 1099-K, payment card and network transactions
- Federal Reserve — Payment systems
- Consumer Financial Protection Bureau — consumer tools
Read this first: This instrument shows arithmetic, not advice. Real offers add fees, taxes and terms that vary by lender and place — verify the figures against your actual paperwork before deciding anything.