Independent agent — we shop every processor for you. Free statement analysis, usually within 4 hours.
USA & Canada 1-888-705-7896
EN
United States · Illinois · Chicago

Card processing rules for Chicago merchants

Two things make Chicago different from almost anywhere else a card is presented in the United States. Illinois passed a law that would stop networks charging interchange on sales tax and tips, and has now postponed it twice while a federal court dismantled most of it. And the city's combined sales tax rate — the base a lot of your card fees are calculated on — went up on 1 August 2026.

Free statement analysis Call 1-888-705-7896

Illinois tried to stop interchange on tax and tips. It is not in force.

No other state has a live statute aimed at the part of a card transaction that a merchant collects on someone else's behalf. Illinois does. The Interchange Fee Prohibition Act, 815 ILCS 151/, enacted as Article 150 of Public Act 103-592, says at section 150-10 that an issuer, a payment card network, an acquirer bank or a processor may not receive or charge a merchant any interchange fee on the tax amount or gratuity of an electronic payment transaction — provided the merchant informs the acquirer bank or its designee of the tax or gratuity amount as part of the authorisation or settlement process.

The statute anticipates that most merchants will not be transmitting that data on day one. Section 150-10(b) gives a merchant who does not transmit it up to 180 days after the transaction to submit tax documentation to the acquirer bank, after which the issuer has 30 days to credit back the interchange charged on the tax or gratuity portion. Section 150-10(d) makes it unlawful to raise the rate on the non-tax portion to claw the difference back. On paper, it is a well-constructed rule.

It is not in force, and a Chicago merchant should not plan as though it will be. The Illinois Compiled Statutes note against section 150-10 currently reads: source Public Act 103-592, effective 7-1-27, see Section 70 of Public Act 104-532 for the effective date of Article 150. That is the second postponement — the effective date moved to 1 July 2026 and then to 1 July 2027. Running alongside that, the United States District Court for the Northern District of Illinois has permanently enjoined the core interchange restriction as applied to national banks, federal savings associations, out-of-state state banks and the payment card networks, after the Office of the Comptroller of the Currency acted in April 2026 to expand national banks' authority to receive non-interest fees indirectly through intermediaries including card networks.

What that actually means for your account

The injunction does not reach Illinois-chartered banks and state credit unions. So even on the most optimistic reading, what survives to 2027 is a rule covering a narrow slice of issuers rather than the networks and national banks that carry the overwhelming majority of card volume presented in Chicago. The honest planning assumption is that you pay interchange on the tax and the tip today, you will keep paying it, and any quote that prices in an Illinois interchange saving is pricing in something that does not exist.

That is worth saying plainly because the opposite has been sold in this market. If a processor or agent has told you they can pass through an Illinois tax-and-tip interchange benefit, ask them which issuers it applies to and which court order they are relying on. The statute's own effective-date note is a public document and takes one minute to check.

The reason it matters commercially is the interaction with the next section. Chicago has one of the highest combined sales tax rates of any large American city, and a tipping culture in hospitality, which is precisely why the Illinois legislature went after this and precisely why the arithmetic is larger here than elsewhere.

10.5 percent since 1 August 2026, up from 10.25 percent

The Illinois Department of Revenue publishes machine-readable ordinance rate files that carry both the current and the previous rate for every taxing location. The Chicago (Cook) record shows a rate effective date of 1 August 2026 with a general merchandise rate of 10.5 percent and a qualifying food and drug rate of 2.5 percent. The prior period ran from 1 January 2016 to 31 July 2026 at 10.25 percent general merchandise and 2.25 percent food and drug. So Chicago sat on 10.25 percent for more than a decade and moved a quarter point this summer.

Underneath that headline number, the Illinois state retailers' occupation tax is 6.25 percent on general merchandise and 1 percent on qualifying drugs and medical appliances. The rest is local, and Chicago's ability to stack it comes from home rule. IDOR's guidance on home rule sales taxes is specific: home rule units impose in 0.25 percent increments with no maximum rate limit, where non-home-rule municipalities are capped at 1 percent. The home rule tax applies to the same base as the state tax except that it does not reach tangible personal property that must be titled or registered by a state agency — vehicles, watercraft, aircraft, trailers and manufactured homes — or qualifying food, drugs and medical appliances.

That exclusion is the reason a Chicago grocer and a Chicago hardware store are not in the same position at all. On general merchandise you are collecting 10.5 percent; on qualifying food and drug items you are collecting 2.5 percent. Interchange and your processor's discount rate are calculated on the full authorised amount, which includes whichever tax you collected. At 10.5 percent, roughly 9.5 percent of a general-merchandise card ticket is tax you never keep and still pay a percentage on. At 2.5 percent it is about 2.4 percent. That is arithmetic rather than a projection, and it means a mixed-basket Chicago retailer's effective rate moves with basket composition in a way a single blended quote will not capture.

Two practical consequences. First, the quarter-point increase on 1 August 2026 raised the base your percentage fees apply to, without anything about your processing agreement changing — worth checking on a statement covering August or later rather than assuming it washed out. Second, Chicago's rate is a city rate; suburban Cook County municipalities and the collar counties are on their own rates, several of which also changed in 2026. If you operate in more than one municipality, confirm each against IDOR's rate finder rather than assuming the Chicago number.

Two business types, two different problems in Chicago

For a Chicago restaurant, the interchange-on-gratuity question is not academic even though the statute is dormant, because the mechanics it describes are the mechanics of your account. A tip-adjusted card transaction authorises at one amount and settles at a higher one, and how your processor prices that difference varies by pricing model. Add a 10.5 percent tax on the food and drink itself and the gap between what you ring up and what you pay a percentage on is wider in Chicago than in most American cities. Our restaurant payment processing hub covers tip handling, authorisation versus settlement and how the pricing models compare on a restaurant card mix.

For Chicago retail, the split base is the thing to model. A store selling only general merchandise is on 10.5 percent; a store whose basket is mostly qualifying food and drug items is on 2.5 percent; most real stores are somewhere between and the mix moves seasonally. Because your card fees are charged on the tax-inclusive total, your effective rate drifts with that mix even when your pricing schedule is fixed. Our retail payment processing hub sets out how to read your real effective rate off a statement rather than off a quote.

In both cases the starting point is the same: total fees divided by total volume, on a real statement, for a period after 1 August 2026. Send us one and we will label every line on it.

Sources

Updated 17 September 2026. General information, not legal or tax advice. Rules change; confirm current rules with the Illinois Department of Revenue, your attorney and your accountant before you change how you price or charge.

Related pages

Chicago FAQ

Asked by Chicago businesses

It is 815 ILCS 151/, enacted as Article 150 of Public Act 103-592. Section 150-10 prohibits an issuer, payment card network, acquirer bank or processor from charging a merchant interchange on the tax amount or gratuity of an electronic payment transaction, provided the merchant transmits that tax or gratuity data as part of authorisation or settlement.

No. The Illinois Compiled Statutes note against section 150-10 records the effective date as 1 July 2027, per Section 70 of Public Act 104-532 — the second time the legislature has postponed it. Separately, a federal court in the Northern District of Illinois has permanently enjoined the core interchange restriction as applied to national banks, federal savings associations, out-of-state state banks and the payment card networks, following the OCC's April 2026 action.

The injunction does not reach Illinois-chartered banks and state credit unions, so a narrow slice of the payments chain could still be covered if the law takes effect in 2027. For planning purposes, treat interchange on tax and tips as something you pay today and should not assume will stop.

10.5 percent on general merchandise, effective 1 August 2026, per the Illinois Department of Revenue's machine-readable ordinance rate file. It was 10.25 percent from 1 January 2016 to 31 July 2026. Qualifying food and drug items are at 2.5 percent, up from 2.25 percent.

Illinois home rule units of local government may impose their own sales tax, in quarter-percent increments, with no maximum rate limit — unlike non-home-rule municipalities, which are capped at 1 percent. IDOR administers and collects it. It does not apply to items that must be titled or registered by a state agency, or to qualifying food, drugs and medical appliances.

Every fee named, usually within 4 hours. Or call now and we quote you on the spot.

Everyone else in this industry says twenty-four hours. We say four — and if that is still too slow, pick up the phone and get your numbers while you are on the call. No contract, nothing to cancel, no pressure.

Get my quote, usually within 4 hours Call 1-888-705-7896 now