What Square does and who uses it

Square is a payment processor that lets small businesses and independent workers accept credit cards, debit cards, and digital payments like Apple Pay. Instead of calling a bank to set up merchant services, you read the Square app, plug in a card reader, and start taking payments on your phone or tablet within minutes. Square handles the transaction — it collects the money from the customer's card, holds it briefly, and deposits it into your business bank account.

Square is used by freelancers, food trucks, pop-up shops, salons, repair services, and small retail stores — anyone who needs to take card payments without a traditional point-of-sale system. You do not need a business license or a separate merchant account; Square handles the banking relationship for you.

Key Takeaways

  • Square charges a per-transaction fee (usually 2.6% plus 10 cents for card payments) rather than a monthly subscription, so you only pay when you actually process a payment.
  • Money from card transactions deposits into your linked bank account within one to two business days, though Square may hold a percentage of early deposits if your account is new.
  • Square provides the card reader hardware for free or at a low cost, and the app itself is free to read and use.
  • Square reports all your transaction data to the IRS on a Form 1099-K if you process over $20,000 in a year, so keep your own records separate.

How Square charges you

Square's main cost is a per-transaction fee, not a monthly bill. For standard card payments (Visa, Mastercard, American Express, Discover), Square charges 2.6% of the transaction amount plus 10 cents. If a customer pays $100, Square takes $2.70. If they pay $20, Square takes $0.62. You see this fee deducted from the deposit that lands in your bank account.

Other payment types have different rates. Keyed-in payments (when you manually enter a card number instead of swiping or tapping) cost 3.6% plus 10 cents. ACH bank transfers cost 1% with a $0.30 minimum and $5 maximum. Cash payments have no fee. Square also charges $1.50 per invoice if you send a payment request by email or text, though the customer does not pay this — it comes out of your deposit.

There is no monthly subscription, no setup fee, and no cancellation penalty. You can stop using Square whenever you want. The only upfront cost is the card reader itself, which Square either provides free (the Square Reader for contactless and chip) or charges $29 for (the Square Stand, a larger terminal for a counter).

How money moves from the customer to your bank account

When a customer taps, inserts, or swipes their card on a Square reader, the transaction travels through Square's system to the customer's bank. The customer's bank approves or declines the payment in seconds. If approved, the money is reserved — it belongs to you, but it is not in your hands yet.

Square then batches your transactions (usually once per day) and sends them to the banking network. Within one to two business days, the total amount (minus Square's fees) lands in the bank account you linked to your Square account. If you process $500 in payments on Monday and Square's fees total $15, you see $485 deposited by Wednesday morning.

New Square accounts sometimes have a rolling reserve, meaning Square holds back a small percentage of each deposit for 30 or 60 days as a safety buffer. This is not a fee — it is your money, just delayed. Once your account has a clean history, Square releases the reserve and deposits 100% of your net proceeds within the normal one- to two-day window.

What happens if a customer disputes a charge

If a customer calls their bank and says they did not recognize a charge or did not receive what they paid for, their bank opens a chargeback. Square notifies you and asks for proof that the transaction was legitimate — a receipt, a photo of the delivered item, a signed contract, or a message from the customer confirming they received the service.

You have a window (usually 7 to 10 days) to submit this evidence through the Square Dashboard. If you provide convincing proof, the chargeback is reversed and the money stays with you. If you do not respond or your proof is weak, Square removes the disputed amount from your account — you lose the money and pay a $15 chargeback fee on top of it.

Chargebacks are rare for in-person transactions where the customer sees the product or service when ready. They are more common for online or phone orders, or when there is a delay between payment and delivery. Keeping clear records and communicating with customers about what they are paying for reduces the risk.

Reporting to the IRS and keeping records

Square reports all your transaction data to the IRS on a Form 1099-K if your total card volume exceeds $20,000 in a calendar year. This form shows your gross transaction volume (before fees), not your net deposits. The IRS uses it to verify that you reported all your income on your tax return.

You are responsible for keeping your own records. Square provides transaction history in the app and Dashboard, and you can export it as a CSV file for your accountant or bookkeeper. Do not rely solely on the 1099-K — it shows only card payments, not cash, checks, or other income. Your own records should show every dollar that came in and every business expense you paid.

If you are self-employed, you will owe self-employment tax on your net income (after business expenses). Square does not withhold taxes or file anything on your behalf — that is your responsibility. Many small business owners work with a tax professional to make sure they are setting aside enough for quarterly estimated tax payments.

Square versus other payment processors

Square competes with PayPal Here, Stripe, Toast, and Clover, each with different fee structures and features. PayPal Here charges the same per-transaction rate as Square but integrates with PayPal's ecosystem. Stripe is built for online payments and charges slightly less per transaction but requires more technical setup. Toast and Clover are full point-of-sale systems aimed at restaurants and retail, with higher monthly costs but more built-in features like inventory and staff management.

Square is the simplest choice if you are just starting out or working solo — you need only a phone, the free app, and the card reader. If you are running a restaurant with multiple registers, inventory tracking, and employee timecards, a full POS system like Toast or Clover might save you time even though it costs more. If you are taking payments online (not in person), Stripe or PayPal might be a better fit.

Getting started with Square

read the Square app from the App Store or Google Play, create an account with your email and phone number, and link a bank account. Square will ask for your Social Security Number or EIN, your business address, and the type of work you do. This information is used to verify your identity and assess risk — Square wants to make sure you are a real business and not someone using the service fraudulently.

Once your account is approved (usually within minutes to a few hours), order or pick up a card reader. The free Square Reader works with iPhones and Android phones. Plug it in, open the app, and you are ready to take your first payment. The entire process takes less than an hour from read to first transaction.

Frequently Asked Questions

Can I use Square if I do not have a business license?

Yes. Square does not require a business license, though some states or cities may require one for your type of work. Square only needs your personal information and a bank account. If you are a freelancer or sole proprietor, you can use Square with just your Social Security Number.

What if my bank account is closed or I change banks?

Log into the Square Dashboard and update your bank account information. Deposits will go to the new account within one to two business days. If you do not update it, Square will try to deposit to the old account, the deposit will fail, and you will see a notification asking you to fix it.

Does Square work internationally?

Square operates in the United States, Canada, Australia, Japan, and a few other countries. If you are outside these regions, you cannot use Square. Check Square's website to see if your country is supported.

What if I process a very high volume of payments?

Square's standard rates explore to all businesses, regardless of size. If you are processing thousands of dollars per day, you might negotiate a custom rate by contacting Square's sales team directly, but this is not may provide. Many high-volume businesses switch to a dedicated processor with volume discounts.

Can I refund a customer through Square?

Yes. In the Square app or Dashboard, find the transaction and select "Refund." The refund is processed back to the customer's card within one to two business days. You are not charged a fee for the refund itself, but you do not get back the original transaction fee either — if you charged $100 and paid $2.70 in fees, a full refund costs you the $2.70.