Illinois Tip and Tax Interchange Appeal

What the Illinois law says

The IFPA targets one specific slice of a card sale: the part that is sales tax or a tip. Interchange is the fee paid to the bank that issued your customer's card, and it is usually worked out on the whole amount of the sale, tip and tax included. The Illinois law says banks, card networks and others should not charge or receive interchange in Illinois on the portion of a debit or credit card sale that is tax or gratuity. For a restaurant, where tips and tax can be a large share of every bill, that is the part of the fee the law was aimed at. Our Chicago guide walks through the statute's own wording and how a merchant would have to report the tax and tip amounts.

What the court blocked, and for whom

The Illinois Bankers Association, the American Bankers Association and other trade groups challenged the law in federal court. According to the ABA Banking Journal, in June 2026 a federal district judge issued a permanent injunction that stops Illinois from enforcing the law against national banks, federal savings associations, out-of-state state-chartered banks protected by federal law, and the payment card networks. The judge later extended the order to federal credit unions. Those groups issue and carry most of the cards your customers use, which is why the ruling matters so much in practice.

What the October 14 appeal means

On October 14, 2026, the Illinois Attorney General said the state will appeal and ask a higher court to reverse the injunction. The ABA Banking Journal reported that the ABA and the other plaintiffs filed a cross-appeal of their own. An appeal takes time, and the injunction stays in place unless a court changes it. So the appeal is news to watch, not a change to your fees.

What it means for your statement today

For cards from the banks and networks covered by the injunction, nothing changes: interchange is still worked out on the full sale, including tax and tip. If you are on interchange-plus pricing, your statement shows interchange as its own line, so any future change would be visible there. If you are on a flat or tiered rate, interchange is blended into one rate, and a saving would only reach you if your processor chose to pass it on. Be careful with any quote that promises an Illinois tip and tax saving today. Ask which card issuers it applies to and which court order it relies on.

Do not change prices or tip policy yet

It is tempting to plan around a law that sounds like it would lower your fees. For now, do not change menu prices, service charges or tip policy because of the IFPA. Do three things instead. First, ask your processor in writing how it would handle the law if parts of it took effect: would it collect tax and tip amounts from your POS, and would any saving appear on your statement? Second, check whether your POS sends tax and tip as separate amounts with each sale. Third, keep a note of who at your business follows the appeal, so a ruling does not catch you off guard. This is general information, not legal advice.

What changes for multi-location and enterprise operators

Groups with locations in Illinois and other states should keep one view of the law across finance, legal and operations. Ask your processor and POS provider whether tax and tip can be sent as separate data on every lane and every channel, including online orders and delivery. If the law ever applies to some card issuers, the savings would depend on that data, so it is worth knowing now whether your systems can provide it. Check your processing contract for how changes in law are handled and whether savings must be passed through. Track interchange on Illinois sales separately by location, so you can measure any change against a clean baseline.

Get a clear read on your fees

CELER Merchants is an independent agent, not a processor or a law firm. Send us a recent statement and we will show you how interchange is charged on your sales today, tip and tax included, and what your pricing model means for any future change. The review is free.