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 use a small card reader that plugs into your phone or tablet, or a standalone terminal that sits on a counter. Square handles the transaction, deposits the money into your bank account, and charges you a fee for each sale.

Homeowners and small contractors use Square most often for service calls, repairs, or selling items directly to customers. A plumber can swipe a card at your kitchen sink. A handyman can take payment on a tablet before leaving your driveway. A homeowner selling furniture or tools can process a payment without opening a business bank account.

Square is not a bank, a loan service, or an investment platform — it is a way to move money from a customer's card to your bank account. The company also sells point-of-sale software, invoicing tools, and payroll services, but the core product is payment processing.

Key Takeaways

  • Square charges a percentage of each transaction (usually 2.6% plus 30 cents for card-present payments) plus a monthly subscription if you use their full point-of-sale system.
  • Money from card sales deposits into your personal or business bank account within one to two business days, though some deposits take longer.
  • You need a smartphone, tablet, or the Square Terminal device to accept payments; the card reader itself is free or low-cost.
  • Square reports all transactions to the IRS on a Form 1099-K if you process over a certain threshold, so keep records of business versus personal sales.
  • Disputes and chargebacks can result in Square holding funds or charging you back, so document what you sold and keep customer communication records.

How Square Charges You

Square's fee structure depends on how you accept payment. For card-present transactions (you swipe, tap, or insert the card in front of the customer), Square charges 2.6% of the sale plus 30 cents. For card-not-present transactions (you type in the card number or send an invoice link), the rate is higher — usually 3.5% plus 30 cents. Online payments through Square's invoicing tool also run 3.5% plus 30 cents.

If you use Square's full point-of-sale system (the software that tracks inventory, employees, and sales), you pay a monthly subscription on top of per-transaction fees. The basic plan starts around $60 per month; higher tiers cost more. The card reader hardware is free for most plans, though some older or specialty readers have a one-time cost of $20 to $100.

There are no setup fees, no monthly minimums, and no cancellation penalties. You pay only for what you use. However, if a customer disputes a charge or files a chargeback, Square deducts the full amount from your account plus a chargeback fee (usually $15 to $25).

How Money Gets Into Your Bank Account

When a customer pays you through Square, the money does not go directly to your bank. Square holds it first, then deposits it into the bank account you linked during setup. Most deposits arrive within one to two business days, though Square's terms allow up to five business days. Weekends and holidays can delay deposits.

Square can hold funds for other reasons too. If you are new to Square, they may hold your first few deposits to reduce risk. If you have a high chargeback rate or a dispute, Square may place a temporary hold on your account. If you sell high-risk items (like gift cards or event tickets), holds are more common. You can see any active holds in your Square dashboard under "Account" and "Payouts."

You need a U.S. bank account in your name or your business name to receive deposits. Square does not pay to PayPal, prepaid cards, or accounts in someone else's name. If you do not have a business bank account, you can use a personal account, but this complicates tax reporting later.

Tax Reporting and the Form 1099-K

If you process more than $5,000 in a calendar year through Square, the company sends you and the IRS a Form 1099-K in January. This form reports your total payment volume, not your profit. If you sold $10,000 worth of items but spent $6,000 on materials, the 1099-K still reports $10,000. You are responsible for reporting your actual profit on your tax return.

The threshold for 1099-K reporting has changed in recent years, and the IRS has delayed enforcement. Currently, the threshold is $5,000 per year, but check with a tax professional about the rules for your filing year. If you operate as a sole proprietor (not a formal business), you report Square income on Schedule C of your personal tax return. If you have an LLC or S-corp, the reporting is different.

Square does not withhold taxes from your deposits. You are responsible for setting aside money for income tax and self-employment tax if you are self-employed. Keep records of what you sold, what it cost you, and what you spent on business expenses — Square's transaction history alone is not enough documentation for the IRS.

Disputes, Chargebacks, and Account Holds

A chargeback happens when a customer tells their bank that a charge was unauthorized or fraudulent, and the bank reverses it without asking you first. Square then deducts the full amount from your account plus a chargeback fee. You have the right to dispute the chargeback by providing evidence — a signed receipt, a photo of the work completed, email confirmation from the customer, or a tracking number for a shipped item.

To protect yourself, document every transaction. Take a photo of the customer's ID and card if possible. Get a signature or digital signature on a receipt. Send a confirmation email after the sale. For service work, take before-and-after photos. Keep all communication with the customer. If a dispute arises, you have 7 to 10 days to submit evidence through Square's dashboard.

If your chargeback rate exceeds a certain threshold (usually 1% of transactions), Square may freeze your account, hold all deposits, or close it entirely. This is rare for legitimate small businesses, but it happens to sellers with high dispute rates or those who process many transactions and then disappear.

Square vs. Other Payment Processors

Square competes with PayPal, Stripe, Toast, and traditional merchant services. PayPal's card-present rate is similar to Square's (2.59% plus 30 cents), but PayPal's online rate is lower (2.29% plus 30 cents). Stripe charges 2.9% plus 30 cents for online payments but does not offer a physical card reader for small businesses — it is designed for e-commerce and apps. Toast is built for restaurants and has higher fees but more specialized features.

For a homeowner or solo contractor accepting occasional card payments, Square and PayPal are the most practical. Square's advantage is the free card reader and the simplicity of the app. PayPal's advantage is lower online fees if you invoice customers. If you need invoicing, inventory tracking, and employee management all in one place, Square's full point-of-sale system may save you money compared to buying separate tools.

The best choice depends on your volume, how you accept payments (in person or online), and whether you need reporting and inventory features. A one-time seller might use PayPal. A contractor with regular customers might choose Square. A retail shop might choose Toast or Square's full system.

Getting Started With Square

Download the Square app or visit square.com and create an account. You will need your Social Security number or EIN, your bank account information, and a valid email address. Square verifies your identity and bank account, which usually takes a few minutes but can take up to a few business days.

Once your account is active, order a free card reader (Square Reader for contactless and chip) or buy a Square Terminal if you want a standalone device. The reader arrives in a few days. Plug it in, pair it with the app, and you are ready to accept payments. Your first transaction may take longer to deposit while Square monitors your account, but after that, deposits follow the standard one- to two-day timeline.

Square's support is available through email, in-app chat, and phone. Response times vary, but for urgent issues (like a frozen account), calling is faster than email. You can also find tutorials and troubleshooting guides on Square's help center.

Frequently Asked Questions

Do I need a business license or business bank account to use Square?

No. You can use Square with a personal bank account and no formal business registration. However, if you process over $5,000 per year, you will receive a 1099-K, and the IRS will expect you to report the income. A business bank account and an LLC or sole proprietor registration make tax reporting clearer and protect your personal assets if something goes wrong.

What happens if a customer disputes a charge after I have already spent the money?

Square deducts the chargeback amount from your next deposit or from your bank account if your Square balance is zero. You lose the money, the product or service, and the chargeback fee. This is why documentation is critical — if you can prove the customer received what they paid for, you can dispute the chargeback and potentially recover the funds.

Can I use Square if I do not have a smartphone or tablet?

Yes. Square Terminal is a standalone device that does not require a phone. It has a built-in screen and card reader, connects to WiFi or cellular, and works independently. It costs more upfront than the mobile reader, but it is more reliable for a fixed location like a home office or garage.

How long does it take to get paid after a customer swipes their card?

The money deposits into your bank account within one to two business days for most transactions. Square's terms allow up to five business days, and new accounts or high-risk sales may take longer. Weekends and bank holidays do not count as business days, so a Friday sale might not deposit until Tuesday.

What if Square closes my account?

Square can close your account if you violate their terms of service (selling prohibited items, high chargeback rates, suspicious activity). If this happens, Square will attempt to deposit any remaining balance into your bank account, but the process can take weeks. You lose the ability to accept payments through Square. You can appeal a closure, but success is rare. This is why keeping clean records and communicating clearly with customers matters.