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 and Google Pay) in person or online. You connect a card reader to your phone or tablet, or embed a payment link into a website or invoice. Square takes a percentage of each transaction — currently 2.6% plus 30 cents for in-person card payments, and 2.9% plus 30 cents for online payments, though rates vary by transaction type and your account history.

Homeowners typically use Square for side work: contractors collecting payment on a job site, someone selling items from home, or a rental property owner taking deposits. It's not a mortgage or home financing tool — it's a way to move money from a customer's card into your bank account. The money usually lands in your linked bank account within one to two business days.

Square also offers invoicing, point-of-sale software, and inventory tracking, but the core function is accepting card payments without a traditional merchant account or a physical storefront.

Key Takeaways

  • Square charges a percentage of each transaction plus a fixed fee, and those fees come out before the money reaches your bank account.
  • You need a smartphone or tablet, a Square reader (which Square often provides free or at low cost), and a linked bank account to get your free guide.
  • Payments typically arrive in your bank account one to two business days after the transaction, minus Square's fees.
  • Square reports transaction data to the IRS on Form 1099-K if you process over a certain threshold, so keep records for tax time.
  • Disputes and chargebacks can reverse a payment and cost you a fee, so document what you're selling and keep communication with customers clear.

Setting up a Square account and getting a card reader

You start by creating a Square account online with your name, email, and phone number. Square will ask for your Social Security Number and bank account details so it can deposit payments. The process takes about 10 minutes, and you don't need a business license or tax ID to open an account, though you will need one eventually if you're running a business.

Next, you need a way to accept cards. Square sells several readers: the Square Reader (a small white device that plugs into your phone's headphone jack or charging port), the Square Terminal (a standalone touchscreen device), and the Square Stand (a full point-of-sale setup). Many new accounts receive a free or discounted reader as part of a promotion. If you're only taking payments online or by invoice, you don't need a physical reader at all.

Once your account is approved and your reader arrives, you download the Square app, pair the reader to your phone, and you're ready to process payments. The whole setup usually takes a day or two from account creation to first transaction.

How fees work and what money you actually receive

Square's fee structure is straightforward but it reduces what lands in your account. For a card payment in person, Square charges 2.6% of the transaction amount plus 30 cents. For an online payment (invoice or website), it's 2.9% plus 30 cents. If a customer pays with a digital wallet like Apple Pay or Google Pay, the rate is the same as in-person (2.6% plus 30 cents).

Example: A customer pays you $100 in person with a credit card. Square takes $2.60 plus $0.30, leaving $97.10 in your account. If that same $100 comes through an online invoice, Square takes $2.90 plus $0.30, leaving $96.80.

Square also charges monthly fees for certain features — the Square Terminal costs $29 per month, and advanced reporting or inventory features add more. If you use Square's invoicing or point-of-sale software, those may have separate costs. Read the pricing page for your account type to know what applies to you.

When money arrives and how to track it

After a customer's card is processed, the money doesn't immediately land in your bank account. Square holds the funds for one to two business days before depositing them. This delay protects Square from chargebacks and fraud — if a customer disputes the charge within that window, Square can reverse it before your money moves.

You can see all your transactions in the Square app or online dashboard in real time. Each transaction shows the customer's name (if provided), the amount, the fee Square took, and the net amount you'll receive. You can also download a report of all transactions for a date range, which is useful for taxes and record-keeping.

If you process payments regularly, Square will deposit your money on a set schedule — usually daily or weekly, depending on your account settings. You can change the deposit frequency in your account settings, though more frequent deposits may come with higher fees.

Chargebacks, disputes, and what happens if a customer contests a payment

A chargeback occurs when a customer contacts their credit card company and says they didn't authorize the charge or didn't receive what they paid for. The card company reverses the payment, and Square charges you a chargeback fee (currently $15 per chargeback). The money goes back to the customer, and you lose both the payment and the fee.

To protect yourself, keep clear records: take photos of the work you did, keep written communication with the customer, and ask them to sign off on the job or delivery. If a customer disputes a charge, Square will ask you to provide evidence that the transaction was legitimate. Photos, emails, text messages, and signed receipts all count as evidence.

Square also has fraud detection built in. If a transaction looks suspicious — a very large amount, a card used in a different country, or a pattern of similar charges — Square may flag it or decline it. This protects you from processing a fraudulent card, which would result in a chargeback later.

Tax reporting and record-keeping

If you process more than $20,000 in transactions and have more than 200 transactions in a calendar year, Square will send you a Form 1099-K by January 31st of the following year. This form reports your gross transaction volume to the IRS. The threshold varies by state and may change, so check Square's current policy.

The 1099-K reports the total amount of money that moved through your account, not your profit. It doesn't account for refunds, chargebacks, or Square's fees. You're responsible for reporting your actual income (after expenses) on your tax return. Keep records of all transactions, refunds, and fees so you can reconcile them with the 1099-K and report the correct amount to the IRS.

Square's dashboard lets you export transaction history as a CSV file, which you can import into accounting software or share with a tax preparer. Doing this monthly or quarterly makes tax time much simpler.

Alternatives to Square and when to consider them

Square isn't the only payment processor. PayPal and Stripe offer similar services with comparable fees. Toast and Clover are designed more for restaurants and retail. Venmo for Business and Cash App for Business are simpler but have lower transaction limits and fewer features.

If you're processing a very high volume of payments, you might negotiate lower rates with a traditional merchant processor or a bank. If you only take a few payments a year, Venmo or PayPal might be cheaper because they don't charge monthly fees. If you need advanced inventory or employee management, Clover or Toast might be worth the higher cost.

Compare based on your actual needs: how many transactions per month, what payment methods matter most to you, whether you need invoicing or point-of-sale features, and what your total monthly cost would be. Square works well for most small home-based businesses, but it's not the only option.

Frequently Asked Questions

Do I need a business license to use Square?

No, you can open a Square account with just your Social Security Number. However, if you're running a business, you should get a business license and an Employer Identification Number (EIN) from the IRS. Square may ask for these later, and you'll need them for taxes and liability purposes.

What happens if a customer's card is declined?

The transaction doesn't go through, and no money changes hands. Square will show the declined transaction in your dashboard. You can ask the customer to try a different card, or offer another payment method like a check or bank transfer. Declined transactions don't cost you a fee.

Can I refund a customer through Square?

Yes. In the Square app or dashboard, find the transaction and select "Refund." The money goes back to the customer's card, usually within one to three business days. Square refunds are free, but you lose the original fee you paid on that transaction.

Is my customer's card information safe with Square?

Square is PCI-DSS compliant, which means it meets security standards set by credit card companies. Your customers' card data is encrypted and not stored on your phone. However, you should still keep your phone secure and never write down card numbers. Square handles the security; you handle the device.

What if I don't use Square for a few months?

Square doesn't charge an inactivity fee. Your account stays open and ready to use. If you have a paid plan (like Square Terminal at $29 per month), you'll still be charged those fees even if you don't process any payments, so cancel paid features if you're not using them.