Assistant Treasurer Daniel Mulino said his government became aware in July the Australian Taxation Office could refuse to accept the payment method when a Reserve Bank ban on card surcharges came into effect in October.
The ATO made a decision in late September to go ahead with the measure, barring credit card payments for tax bills.
But after an outcry from small business, Labor announced the government would step in and cover the fees incurred on the card payments until the end of the financial year.
Mr Mulino said the government urged the tax office to continue negotiations with credit card companies to set up a transition period, rather than just implement a straight ban.
"Those discussions didn't get to the point where it was possible for that to occur and so the ATO made a call in late September to not accept credit cards," he told the ABC's Insiders program on Sunday.
"The two-month transition period was the busiest period of tax submission. So the original thinking by the ATO was that that would be a sufficient period.
"The transition period, as it turned out from stakeholder feedback, wasn't enough, and so that's where the government stepped in."
Australian Chamber of Commerce and Industry chief executive Andrew McKellar said it was concerning businesses were not told about the changes until the day before the ban started.
"It is concerning that the government was considering a ban on credit card payments in July, yet business wasn't made aware until just hours before the surcharge ban took effect," he said.
"This looks like a completely deficient policymaking process that took small business for granted. It cannot be repeated."
Despite the months-long notice period from the tax office, Mr Mulino denied the government had taken a hands-off approach to the change.
"It was an approach where we didn't get into all of the details," he said.
"Those discussions (between the ATO and credit card companies) did continue and have led to an improvement in the offer and they continue now."
The assistant treasurer said a transition period for the ATO to phase out accepting credit card payments was still the best approach.
"Accepting credit card payments going on indefinitely would have very serious fiscal ramifications for the budget," he said.
The fallout from the credit card payments bungle has led to criticism of the federal government that ministers did not understand the needs of small businesses.
Mr McKellar said a permanent solution was needed to help smaller firms, repeating calls for the payment option to be retained.
Industry Minister Tim Ayres rejected the attacks, saying businesses had lower costs as a result of the Reserve Bank surcharge ban.
However, he said the government was unlikely to permanently reverse the ATO's ban on credit card payments.
"I don't think that there's any prospect of this issue being managed that way," he told News24.
Shadow treasurer Tim Wilson said the lack of notice given to businesses about the changes was not good enough.
"It doesn't matter who ends up in the treasurer's chair, the problem is the Albanese government's active inflation agenda, which treats small business as a revenue source, not the backbone of the economy," he said.
"Small business shouldn't find out about decisions like this in the newspaper."
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