What Square does and who uses it

Square is a payment processor that lets you accept credit cards, debit cards, and digital payments (like Apple Pay or Google Pay) without a traditional merchant account. You connect a small card reader to your phone or tablet, or use Square's online checkout, and the payment goes through their system. Square takes a percentage of each transaction as their fee.

For homeowners, Square matters most if you're collecting money from contractors, renters, or service providers — say, you're renting out a room and want to accept card payments instead of checks. For contractors and home service businesses, Square is one way to get paid on the job site instead of waiting for a check or dealing with cash.

Square competes with other processors like PayPal, Stripe, and traditional merchant services. The main difference is that Square started with small businesses and makes it simple to start without a contract or application process that takes weeks.

Key Takeaways

  • Square charges a percentage of each transaction (the rate depends on how you accept the payment) plus a small per-transaction fee for some payment types.
  • You need a Square account, a compatible device (phone or tablet), and the Square app to accept card payments in person or online.
  • Money from card payments typically deposits to your bank account within one to two business days.
  • Square does not require a long-term contract, but you pay fees on every transaction, so the cost adds up if you process many small payments.
  • For homeowners collecting occasional payments, Square's simplicity often outweighs the fees; for high-volume contractors, the percentage cost may make other processors cheaper.

How Square's fees work

Square charges different rates depending on how the customer pays. For in-person card payments using Square's card reader, the rate is typically 2.6% plus 10 cents per transaction. For online payments through Square's checkout or invoice feature, it's 2.9% plus 30 cents. For contactless payments (Apple Pay, Google Pay, etc.) read through the same card reader, the rate is the same as in-person card payments.

These percentages are not fixed across all accounts or time periods — Square adjusts rates based on your business type and payment history. A contractor with a long history of successful transactions may see different rates than someone just starting out. The best approach is to log into your Square account or contact Square directly to see what rate applies to you.

There are no monthly fees, no setup fees, and no cancellation fees. You only pay when you process a payment. If you don't use Square for a month, you owe nothing. This makes it low-risk to try, but it also means the cost per transaction is higher than it would be with a traditional merchant account that charges a monthly fee plus a lower per-transaction rate.

Setting up Square and accepting payments

To start, you download the Square app on your phone or tablet, create an account with your email and basic business information, and link a bank account where deposits will land. Square verifies your bank account by depositing and withdrawing small amounts — this usually takes a few days.

For in-person payments, you order a Square card reader (a small white device that plugs into your phone's headphone jack or connects via Bluetooth). The reader costs money upfront — typically $10 to $50 depending on the model — but Square sometimes offers free readers to new users. Once the reader arrives and you've set it up in the app, you can swipe or insert a card and process the payment on the spot.

For online or remote payments, you don't need a card reader. You can create an invoice in the Square app or send a payment link via email or text. The customer clicks the link, enters their card details, and pays. You see the payment in your Square account and the money deposits to your bank account.

When money lands in your bank account

Square deposits most payments within one to two business days. If you process a payment on a Monday morning, the money typically arrives in your bank account by Wednesday. Weekends and holidays can extend this — a payment processed on Friday evening might not arrive until Tuesday.

Square holds some payments longer if they flag them as higher-risk. This might happen if you process an unusually large payment, if the card is from a different country, or if your account is brand new. In those cases, Square may hold the deposit for up to seven days while they verify the transaction. You can see the expected deposit date in your Square account.

If a customer disputes a charge or requests a refund, Square reverses the payment and deducts it from your next deposit. This can turn a deposit into a negative balance if the refund is large enough, which means you owe Square money instead of the other way around.

Square versus other payment processors

PayPal and Stripe also process payments and charge similar per-transaction rates. PayPal's in-person rate is 2.7% plus 5 cents, slightly higher than Square's 2.6% plus 10 cents. Stripe's rates vary more depending on your business type but often fall in the same range. The differences are small enough that the choice usually comes down to which interface you prefer and which processor integrates with other tools you already use.

Traditional merchant accounts through a bank or payment processor typically charge a monthly fee (often $20 to $50) plus a lower per-transaction rate (1.5% to 2%). If you process hundreds of payments a month, the monthly fee model becomes cheaper than Square's per-transaction model. If you process only a handful of payments a month, Square's no-monthly-fee approach is cheaper.

Square also offers additional features like invoicing, expense tracking, and point-of-sale software for retail businesses. If you need those tools, Square's all-in-one approach may save you money compared to buying separate software. If you only need to accept payments, a simpler processor might be enough.

Risks and disputes

When a customer pays by card, they can dispute the charge with their bank if they claim they didn't authorize it or didn't receive what they paid for. Square charges you a dispute fee (typically $15 to $25) and reverses the payment while they investigate. If you lose the dispute, you lose both the payment and the fee.

To protect yourself, keep records of what the customer paid for — a photo of completed work, a signed agreement, or an invoice with a description of the service. If a dispute happens, you can upload this evidence to Square and they'll review it. Having clear documentation significantly improves your chances of winning.

Square also has fraud protections built in. If someone uses a stolen card to pay you, Square's system may flag it and hold the payment. This protects you from later being charged back when the cardholder reports the fraud. The downside is that legitimate payments sometimes get flagged too, which can delay your deposit.

Is Square right for your situation

Square works well if you process payments infrequently or in small amounts. A homeowner collecting rent from a roommate, a contractor getting paid for a small job, or a service provider accepting the occasional card payment all benefit from Square's simplicity and lack of monthly fees.

Square becomes less attractive if you process many high-value payments. A contractor billing $5,000 for a job pays $130 in Square fees (2.6% plus 10 cents). Over a year with dozens of jobs, that adds up. A traditional merchant account with a $30 monthly fee and 1.8% per-transaction rate would cost less.

Square also requires a smartphone or tablet and an internet connection. If you work in areas with poor cell service or prefer not to rely on a mobile device, Square may not be practical. In that case, a traditional card reader that works offline or a different processor might be better.

Frequently Asked Questions

Can I use Square if I don't have a business license?

Yes. Square does not require a business license to open an account. You can use it as an individual collecting payments. However, you are still responsible for reporting the income to the IRS on your tax return. Square sends you a 1099-K form at the end of the year if you process over a certain amount of payments.

What happens if a customer's card is declined?

The payment does not go through and you are not charged a fee. The customer can try a different card or payment method. Square tells you immediately that the card was declined so you know to ask for another way to pay.

Can I refund a payment after it's been processed?

Yes. In the Square app, you can issue a refund for any transaction. The refund goes back to the customer's card within one to two business days. Square does not charge you a fee to issue a refund, but the original transaction fee is not returned to you.

Do I need to pay taxes on Square payments?

Yes. Square payments are income and must be reported on your tax return. Square sends you a 1099-K at the end of the year showing the total amount processed. Keep your own records of expenses related to the income so you can deduct them and reduce your tax liability.

What if I want to cancel my Square account?

You can close your account anytime through the Square app or website. There is no cancellation fee or penalty. Any pending deposits will still be sent to your bank account. If you have an outstanding balance (from refunds or chargebacks), Square will deduct it from your final deposit.