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. It's built for small businesses, freelancers, and independent contractors who need to take payments without a traditional merchant account or a long contract with a bank.
Square handles the behind-the-scenes work: it connects your card reader or online checkout to your bank account, processes the transaction, and deposits the money into your account. You don't need to explore through a bank or sign a multi-year agreement. You can start accepting payments within days of signing up.
The company also offers a point-of-sale system (called Square for Retail), invoicing tools, online store hosting, and appointment booking—but the core product is the payment processing itself.
Key Takeaways
- Square charges a percentage of each transaction (typically 2.6% plus 10 cents for in-person card payments) rather than a monthly fee, so you only pay when you actually process a payment.
- You can accept payments in person using a small card reader that plugs into your phone or tablet, or online through a checkout link or Square's hosted payment page.
- Money from card sales deposits into your bank account, usually within one to two business days, though timing depends on your bank.
- Square requires you to have a U.S. bank account and a Social Security number or EIN to set up an account.
- Square keeps records of all your transactions and can generate reports, but you are responsible for tracking income and paying taxes on what you earn.
How Square's Pricing Works
Square does not charge a monthly subscription or setup fee. Instead, you pay a percentage of each transaction you process. For in-person payments with a physical card (swiped, inserted, or tapped), the rate is 2.6% plus 10 cents per transaction. For online payments or card-not-present transactions, the rate is higher—typically 3.6% plus 30 cents.
If a customer pays with a digital wallet like Apple Pay or Google Pay in person, that counts as an in-person transaction and uses the lower 2.6% rate. If you use Square's invoicing tool to send a payment link to a customer, that's a card-not-present transaction and uses the 3.6% rate.
There are no hidden fees for basic payment processing, but Square does charge for add-on services. For example, if you want to use Square's point-of-sale system with hardware like a cash register or receipt printer, those items cost extra. Refunds are free—Square straightforward reverses the transaction and returns the percentage you paid.
Setting Up Square: What You Need
To create a Square account, you need a U.S. bank account, a valid Social Security number or EIN, and a phone number. Square will ask for your business name, address, and the type of work you do. The signup process takes about 10 minutes and happens entirely online through Square's website or mobile app.
Once your account is approved, you can start accepting payments right away. If you want to take payments in person, you'll need a card reader. Square sells a small reader called the Square Reader for about $29 (prices vary), which connects to your phone or tablet via Bluetooth or the headphone jack. You can also use Square's contactless and chip reader, which is larger and designed for a counter or register.
For online payments, you don't need any hardware. You can send customers a payment link via email or text, embed a checkout button on your website, or use Square's online store feature if you're selling products.
How Money Gets Into Your Bank Account
When a customer pays you with a card, Square processes the transaction and holds the money briefly. The funds then deposit into the bank account you connected during signup. Most deposits arrive within one to two business days, though some banks take longer to post the money to your account.
Square deposits your money on a regular schedule—usually daily or weekly, depending on your account type and history. You can see pending deposits and past deposits in the Square Dashboard, which is the main control panel for your account. The Dashboard shows you exactly when money will arrive and how much.
If a customer disputes a charge or requests a refund, Square reverses the transaction. The refund goes back to the customer's card, and the money is removed from your next deposit. This can take a few days to process.
In-Person Payments With a Card Reader
To accept payments in person, you connect a Square card reader to your phone or tablet using the Square Point of Sale app (free to read). The reader is small enough to fit in a pocket, making it popular with food trucks, contractors, and service providers who work on the go.
When a customer wants to pay, you open the app, enter the amount, and ask them to insert their card, swipe it, or tap their phone or watch. The reader processes the payment in seconds. The customer can sign on the screen or enter a PIN, depending on the card type. A receipt prints automatically if you have a printer connected, or you can email or text it to the customer.
Square keeps a record of every transaction in your account. You can see sales history, refunds, and customer information all in one place. This makes it straightforward to track how much you've earned and who your repeat customers are.
Online Payments and Payment Links
If you're not meeting customers in person, you can send them a payment link instead. Square generates a unique link that you can email, text, or share however you want. When the customer clicks the link, they see a checkout page where they enter their card details and complete the payment.
You can also embed a "Buy Now" button on your own website, which opens Square's checkout when clicked. This works even if you don't have your own e-commerce platform. Square handles the payment page, security, and fraud protection.
For businesses that sell products online, Square offers a free online store where you can list items, set prices, and let customers check out. You control the design and product descriptions. Square handles the payments and can integrate with your inventory if you use Square's point-of-sale system.
Security, Fraud, and Chargebacks
Square encrypts all card data and never stores full card numbers on your phone or computer. The company is certified for PCI compliance, which is the security standard for handling credit card information. This means your customer's card details are protected the same way they would be at a bank or major retailer.
Square also monitors transactions for fraud. If something looks suspicious—like an unusually large purchase or a card being used in two different locations within minutes—Square may flag it or ask you to verify the transaction. You can also set limits on transaction amounts if you want extra protection.
If a customer disputes a charge (called a chargeback), Square notifies you and gives you a chance to respond with evidence that the transaction was legitimate. This might include a receipt, a photo of the item delivered, or a message from the customer confirming the purchase. If you win the dispute, the money stays in your account. If you lose, Square removes the funds and may charge you a chargeback fee.
Frequently Asked Questions
Can I use Square if I don't have a business license?
Yes. Square works for freelancers, contractors, and sole proprietors who don't have a formal business license. You just need a Social Security number and a bank account. If you operate under a business name, you can add that to your account, but it's not required.
What happens if a customer's card is declined?
The transaction doesn't go through, and no money is charged to the customer or deposited to your account. Square tells you the card was declined and usually gives a reason (insufficient funds, expired card, etc.). You can ask the customer to try a different card or payment method.
Can I refund a customer after they've paid?
Yes. You can issue a refund from the Square Dashboard at any time. The refund goes back to the customer's card, and the money is removed from your account. Refunds are free and usually process within a few business days, depending on the customer's bank.
Do I have to pay taxes on money I earn through Square?
Yes. Square is a payment processor, not a tax service. All money you receive is income and must be reported on your tax return. Square sends you a summary of your annual sales (called a 1099-K form if you meet certain thresholds), but you are responsible for tracking your income and paying taxes owed.
What if I want to stop using Square?
You can close your account anytime. There's no contract or early termination fee. Once your account is closed, you can't process new payments, but you can still view your transaction history and read reports for your records.