Dr Chalmers bowed to a concerted business lobby campaign on Friday, announcing the Australian Taxation Office would delay its initial deadline of November 30 until the end of the financial year.
The tax office surprised businesses by announcing it would no longer accept the payment method on October 1, the day a ban on card surcharges came into effect.
Business groups argued credit card payments were important for smaller operators to manage lumpy cash flow.
"This will give them the time to consult more with small business and to get it right," Dr Chalmers told reporters in Brisbane.
At the time, ATO commissioner Rob Heferen said merchant fees were expected to cost the tax office almost $200 million annually, which it could not absorb because it would result in less funds being available for government services.
"Meeting the cost of surcharges through additional public funding for the ATO would have the same ultimate outcome," he said.
But Dr Chalmers handed the tax office extra funding anyway, delaying the credit card ban until June 30, 2027.
The cost of the funding boost will be finalised in the mid-year budget update in December, he said.Â
Dr Chalmers blamed credit card companies for not offering low enough fees to allow the ATO to keep accepting card payments.
"The ATO will continue to engage with card companies on this matter," he said.
After June 30, the tax office would continue to accept credit card payments via third parties as well as debit cards and bank transfers, Dr Chalmers said.
The tax office said it would continue consultations on how to support taxpayers experiencing financial hardship and to identify alternative arrangements for businesses that could not use other payment methods.
The decision gave small businesses much-needed breathing space, Australian Chamber of Commerce and Industry chief executive Andrew McKellar said.
"But this decision does not save them from rising costs and shrinking margins," he said.
The coalition would introduce legislation to parliament next week ensuring the ban was scrapped, shadow treasurer Tim Wilson said.
"The tax office gets a taxpayer-funded bailout, but the local cafe gets thrown under the bus. It's one rule for Canberra and another for small business," he said.
The tax office said only five per cent of small businesses used credit cards to pay tax in 2024/25.
About 85 per cent of small merchants did not impose surcharges before the ban was put in place and would not be negatively impacted by the change, said the Reserve Bank of Australia, which oversaw the reforms.
The broader reform package included capping interchange fees on card transactions and improving transparency of fees paid by merchants to card network providers.
That should theoretically drive down costs for businesses long term, RMIT University professor of finance Angel Zhong said.
Major banks, including Commonwealth Bank and Westpac, have reduced merchant fees in response.
But not all the savings had been passed on, Prof Zhong said.
"It really depends on the payment service providers you use. Usually, large business will have better bargaining power to actually negotiate a better deal," she told AAP.
"My hope is that as the transparency of the system improves, the industry will become more competitive and then there are better deals for businesses."
Businesses were expected to save $900 million a year in lower interchange fees, Dr Chalmers said.
