What Is a Surcharge?
In common usage, a surcharge refers to an additional payment or tax heaped upon an existing charge. Surcharges can arise due to a variety of reasons, such as a locality's need to collect money for extra services. Surcharges can be assessed by governments, corporations and organizations.
A tax surcharge, often called a surtax, is an additional tax based on some characteristic of a taxpayer, such as her income or normal tax obligation. An example is the surcharge that helps pay for the Medicare system and is withheld from an employee's salary or wages. The government refers to this surcharge as an "additional Medicare tax." The regular Medicare tax is 2.9 percent of income, and the surcharge is an additional 0.9 percent tax on income -- wages, compensation and self-employment income -- exceeding certain thresholds. For example, in 2014 the Medicare surcharge applied to a single individual's annual income in excess of $200,000.
Some surcharges arise out of public health concerns and the costs of addressing those concerns. For example, the Affordable Care Act provides access to health insurance for all Americans, regardless of pre-existing conditions. One exception exists: The tobacco surcharge is an additional premium an insurer can charge to tobacco users applying for health insurance through the ACA. In 2014, the maximum premium increase because of the tobacco surcharge is 50 percent.
Public Policy Surcharges
Various federal, state and local government agencies use surcharges to punish certain types of behavior, often in the belief that the surcharge serves the public good. For example, the Texas Department of Public Safety administers its Driver Responsibility Program to assess surcharges on drivers committing certain traffic offenses. These surcharges are in addition to points, suspension, loss of license or jail time. The program assesses two types of surcharges: one based on points and a second based on convictions. For example, a driver receives an annual surcharge for having at least six points and/or having a driving conviction within the last three years.
Often, companies assess surcharges on extra services or benefits. For example, many airlines now have various surcharges for checked baggage, based on the number of suitcases and/or weight. Airlines also routinely tack on mileage-based fuel surcharges to help offset the high price of aviation fuel. Other features for which airlines assess surcharges include seats with extra legroom, early boarding and headsets. According to a 2014 Seattle Times article, the airline industry collects $3.3 billion a year in surcharges.