What Square does and who uses it

Square is a payment processor that lets you accept credit cards, debit cards, and digital wallets (like Apple Pay or Google Pay) without a traditional merchant account. You connect a small card reader to your phone or tablet, or use an online link to collect payment. Square takes a percentage of each transaction — currently 2.6% plus 10 cents for in-person card payments, and 2.9% plus 30 cents for online or phone payments, though rates vary by transaction type.

For homeowners, Square is most useful if you're collecting money from others: rent from a tenant, payment for a room you're renting out, reimbursement from a contractor or service provider, or funds from a home-based business. It's also practical if you're selling your home and need to collect earnest money or other deposits, though most real estate transactions use an escrow company instead.

Square is not a mortgage lender, a home insurance provider, or a financing tool for repairs. It only moves money from one person's card to your business account.

Key Takeaways

  • Square charges a percentage of each transaction plus a small flat fee, and you need a business bank account to receive the money.
  • You can accept payments in person with a card reader, online with a payment link, or by phone, depending on which Square product you choose.
  • Money from card payments typically lands in your bank account within one to two business days.
  • Square reports transaction data to the IRS if you process over $20,000 and have more than 200 transactions in a calendar year, so keep records for tax purposes.
  • You are responsible for refunding customers and handling disputes; Square does not mediate between you and the person who paid.

How to set up Square and accept your first payment

Start by creating a Square account online at square.com. You'll provide your name, email, phone number, and the business address (which can be your home). Square will ask for your Social Security number or EIN, your date of birth, and your business bank account details. The account itself is free to open.

Next, choose which Square product fits your situation. Square Reader is the physical card reader you tap or insert a card into — it costs about $29 to $99 depending on the model. Square Online lets you send a payment link via email or text, or embed a payment button on a website; this has no hardware cost. Square Phone Payments lets you key in card details manually over the phone, which is slower and charges a higher rate (3.5% plus 15 cents).

Once you've chosen your product and received any hardware, you're ready to accept payment. The person paying enters or taps their card, Square processes it, and you see the transaction in your Square Dashboard. The money moves to your bank account automatically, usually within one to two business days.

Fees, timing, and what happens to the money

Square's standard rates for in-person payments are 2.6% plus 10 cents per transaction. Online and phone payments cost 2.9% plus 30 cents. If you use Square Invoices to send a bill, the rate is 2.9% plus 30 cents. Some transaction types — like recurring subscriptions or ACH transfers — have different rates. Square publishes its current rates on its pricing page, and rates can change.

When someone pays you, Square holds the money briefly to verify the transaction, then deposits it into your business bank account. Standard deposits take one to two business days. If you need the money faster, Square offers Instant Deposit, which moves funds to your account within minutes, but charges a small fee (usually 1% of the transaction, with a minimum and maximum).

The money goes into whichever bank account you linked when you set up Square. Make sure that account is in your name or your business name, and that you have access to it. If you close the account or change banks, you'll need to update your Square settings or deposits will fail.

Tax reporting and record-keeping

Square reports your transaction data to the IRS on Form 1099-K if you process more than $20,000 and have more than 200 transactions in a single calendar year. The threshold used to be $5,000, but the IRS raised it to $20,000 in 2024. Even if you don't hit the threshold, you still owe taxes on the income — the 1099-K is just a record the IRS receives.

Keep your own records of every transaction: who paid, when, how much, and what it was for. Square stores this in your Dashboard, and you can export reports. At tax time, give your accountant or tax preparer access to these records, or download them yourself and provide them. The money you receive is income, and you may owe self-employment tax on it in addition to income tax.

If you're renting out a room or a property, the rent you collect is taxable rental income. If you're collecting reimbursement for a shared expense (like splitting utilities with a roommate), that's not income — it's a return of your own money. Document the difference clearly, because the IRS will want to know why you're processing payments.

Disputes, refunds, and what Square won't do

If the person who paid you disputes the charge with their bank or credit card company, Square will notify you and ask for evidence that the transaction was legitimate. You'll need to provide proof — a receipt, an email confirming the agreement, a lease, or a text message showing the person authorized the payment. If you can't prove it, the charge gets reversed and the money goes back to them.

If you need to refund someone, you do that through your Square Dashboard. The refund goes back to their card, and it usually takes one to two business days. You don't get the Square fees back — if you charged $100 and paid $2.60 in fees, and then refund the $100, you've lost the $2.60.

Square does not mediate disputes between you and the customer. It's not a collection service, a debt recovery tool, or a legal enforcer. If someone refuses to pay or disputes a legitimate charge, you'll need to handle that yourself — through small claims court, a collection agency, or by writing it off.

Security and protecting your account

Square encrypts card data and doesn't store full card numbers on your phone or device. When someone taps or inserts a card, the reader sends the data directly to Square's servers, not through your phone. This meets the Payment Card Industry Data Security Standard (PCI DSS), which protects cardholders.

Protect your Square account login the same way you'd protect your bank account. Use a strong, unique password and enable two-factor authentication if Square offers it. If someone gains access to your account, they can process refunds, change your bank account, or see transaction history. If you suspect fraud, contact Square's support team immediately.

Keep your card reader physically secure. If it's lost or stolen, someone could use it to process payments to your account — though Square's fraud detection usually catches unauthorized activity. Report a lost reader to Square right away and request a replacement.

Alternatives to Square for homeowners

PayPal and Stripe offer similar services with comparable rates. PayPal's in-person rate is 2.7% plus 5 cents; Stripe's is 2.7% plus 5 cents. Both work with card readers and online payment links. The choice usually comes down to which interface you find easier and whether you already use one of these services for other reasons.

Venmo and Cash App are free for personal transfers between friends, but they're not designed for business payments and don't provide the same tax reporting or dispute resolution. If you're collecting money for a home-based business or rental property, Square, PayPal, or Stripe are more appropriate.

If you're a landlord collecting rent, some property management software (like Appfolio or Rent Manager) includes built-in payment processing, often at a lower rate than Square. These tools also handle lease tracking, maintenance requests, and tenant communication, so they may be worth the cost if you manage multiple units.

Frequently Asked Questions

Do I need a business license to use Square?

Square doesn't require one, but your local government might. If you're renting out a room or property, or running a home-based business, check your city or county rules. Some places require a business license for any income-generating activity; others don't. Square will ask for your business address and type, but it doesn't verify your license.

What if someone pays with a card that gets reported stolen?

Square's fraud detection usually catches stolen cards before the payment goes through. If a stolen card does go through and the cardholder disputes it, Square will ask you for proof the transaction was legitimate. If you can't prove it, the charge gets reversed. This is why it's important to keep records — a signed agreement, email, or text message showing the person authorized the payment.

Can I use Square to collect a security deposit from a tenant?

Technically yes, but it's not the best way. Security deposits are held in trust and must be kept separate from your personal money. Many states require deposits to go into a dedicated account or be held by a third party. Using Square puts the deposit in your business account, which can create tax and legal problems. Use an escrow service or a dedicated security deposit account instead.

How long does it take to get paid after someone uses my card reader?

Standard deposits take one to two business days. If you use Instant Deposit, the money arrives within minutes, but Square charges a small fee. Weekends and holidays can delay deposits — a payment on Friday might not arrive until Monday or Tuesday.

What happens if I close my Square account?

Any pending deposits will still go through to your linked bank account. Transactions already processed stay in your account history. If you want to keep records, download your transaction reports before you close the account. Square keeps records for your tax file, but you should keep your own copies too.