Estimated taxes during checkout

To improve accuracy, an estimated tax calculation is displayed to customers when they are in the checkout process. After the checkout process is complete, the final tax amount is calculated and charged to the customer.

Considerations for using estimated tax

When tax is estimated on an order, a calculation is performed after an order is confirmed to ensure that the tax charged is accurate. If this calculation isn't possible, then the original tax estimate is used. Review the following list to learn more about orders that do not have tax estimated.

  • Tax estimation is only performed on orders that are fulfilled and shipped in the United States. Orders that are fulfilled from or are shipped to destinations outside the United States are not estimated, and will have tax calculated and charged using the original tax estimate.
  • Tax estimation is only performed on orders that use the following payment methods:
    • Shopify Payments
    • Braintree
    • Authorize.net
  • Tax estimation does not occur in the following cases. Tax is calculated and charged using the original tax estimate for the following:
    • abandoned checkout orders
    • draft orders
    • orders partially or fully paid for with gift cards
    • orders with tax overrides
    • orders with deferred payments
    • orders placed using Shopify POS
    • orders that are manually paid
    • PayPal checkout
    • orders placed when manual payment capture is turned on

Customer experience with estimated tax during checkout

When a customer is in the process of checking out, taxes are listed as Estimated tax and feature a ? icon. When a customer hovers their cursor over the icon, a tooltip is displayed indicating that the final tax amount will be available after the order is placed, and that the final tax amount is sent to them by text or email.

When the checkout process is complete, Estimated tax is displayed on the customer's order status page until taxes have been calculated and the customer's credit card is authorized for the estimated tax amount. Payment is not captured until the final tax amount is calculated.

After the process of tax finalization is complete, the final tax amount is displayed on the customer's order confirmation email or text. The customer's order status page is also updated to include the final tax amount. The customer is charged the new total, including the final tax amount.

The final tax amount might be lower than or higher than the estimated amount that is provided to the customer during the checkout. In this case, there is no need to take action, such as issuing a refund. Estimated tax is only authorized by the payment method, but it is not charged to the customer.

If the tax on an order is overestimated, which means that the final tax amount is lower than the estimated tax amount that is provided to the customer during checkout, then only the final amount is captured on the customer's credit card. Remaining funds that are authorized on the customer's credit card are released. If you use Shopify Payments, then the difference between the authorized amount and the amount that was actually captured is displayed as a refund on your payouts page.

If the tax on an order is underestimated, which means that the final tax amount is higher than the estimated tax amount that is provided to the customer during checkout, then the authorization on the customer's credit card is voided, and a new authorization is created for the final amount. If the customer's payment method doesn't have the necessary funds for the new authorization amount, then the order appears in your Orders page as an unpaid order. An email notification is sent to your customer indicating that their payment has failed, and prompts them to complete their purchase. To review the template for the notification sent in this case, go in your Shopify admin to Settings > Notifications > Pending payment error.

Payment authorization and capture with estimated tax

When you use estimated tax, a customer's credit card is authorized for a brief period of time for the amount of the estimated tax. After the final tax is calculated, the payment is captured and the customer's card is charged.

The process of authorizing and capturing payment is displayed on the order's timeline.

Changes to the order timeline with estimated tax

On the Orders page in your Shopify admin, the order timeline lists the authorized payment amount based on the estimated tax, and the captured payment amount based on final tax. If an order has used tax estimation, then the following information appears in the order timeline:

  • Authorized amount - This entry on the order timeline indicates the funds that were authorized on the customer's credit card, based on estimated tax. For example, $432.00 USD was authorized on the Visa ending in 7525.
  • Tax amount update - This entry on the order timeline appears in the timeline if the final tax amount is different from the estimated tax amount. For example, Tax amount was updated from $22.00 USD to $20.00 USD.
  • Captured amount - This entry on the order timeline indicates how much the customer was actually charged, based on the final tax amount. For example, $430 USD was captured on the Visa ending in 7525.

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