Generally, yes. For a U.S. freelancer operating as a sole proprietor, payment-processing fees paid for business transactions can generally be deducted as ordinary and necessary business expenses. The IRS does not specifically list every kind of processor fee, so this applies its general expense rule rather than quoting a fee-specific IRS example.
When a processing fee can qualify
The IRS says a business expense must be both ordinary—common and accepted in the trade or business—and necessary—helpful and appropriate for that business. Its 2025 Publication 334 includes bank fees among expenses a small business may be able to deduct. Applying that general rule, fees charged to accept customer payments for freelance work can generally qualify when they relate to the business.
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This is U.S. federal guidance, focused on sole proprietors. State and local rules, and tax rules in other countries, can differ; the IRS directs taxpayers to consider applicable state and local requirements.
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A sole proprietor generally reports business income or loss on Schedule C. The IRS overview of Schedule C explains its purpose. For the 2025 tax year, the Schedule C instructions identify line 10 for commissions and fees, except amounts capitalized or deducted elsewhere. Line 10 may be a relevant place for routine payment-processing charges, but the appropriate treatment depends on what the charge covers and the instructions for the filing year.
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Do not automatically treat every fee labeled “processing” as a routine business expense. The 2025 instructions say commissions and other fees paid to facilitate a property sale may have to be capitalized, subject to an exception for dealers in property. That category is different from an ordinary charge for processing a customer’s payment.
How to reconcile fees with Form 1099-K
Form 1099-K reports gross payment amounts for payment-card and third-party-network transactions. The IRS guidance on Form 1099-K says freelancers and other self-employed taxpayers generally report this payment information on Schedule C and should keep records supporting income and deductible expenses.
A 1099-K gross amount is not the same as the net deposit after processor fees. Reconcile the form against processor statements and your books, accounting for gross payments, fees, refunds, and the amounts deposited. Keep records that support both the income reported and the fee deduction; do not assume the form has already subtracted processor charges.
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Which records to keep and how to handle mixed use
Keep processor statements, fee summaries, invoices or transaction reports, and bookkeeping records showing that the charges relate to freelance work and how much you paid. The IRS advises keeping records that support income and deductible expenses.
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If a charge covers both business and personal activity, only the business share is potentially deductible. Allocate the cost reasonably and leave out the personal portion; personal expenses generally are not deductible. The IRS discusses this distinction in its income and expenses guidance.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.What the deduction does—and does not—mean
A deduction reduces taxable business profit; it does not reimburse you for the full processing charge. The tax effect depends on your overall circumstances, so there is no universal savings amount to apply to a fee.
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This article covers general U.S. federal treatment for sole proprietors, not individualized tax advice. Check the Schedule C instructions for the tax year you are filing and the rules that apply to your jurisdiction.
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