How to Correctly Add Taxes to Square

Square is a widely used point-of-sale system and payment processor that helps businesses manage transactions, whether in-person or online. For businesses, understanding how to handle sales tax is important to ensure compliance with tax regulations. Sales tax is generally collected from customers at the point of sale and then remitted to the appropriate taxing authorities.

Setting Up Your Sales Taxes in Square

You can access Square’s tax settings through the Square Dashboard on a web browser or directly from the Square Point of Sale (POS) app. On the Square Dashboard, navigate to “Settings,” “Account & Settings,” “Payments,” and “Sales taxes.” Within the POS app, tap “≡ More,” “Settings,” “Checkout,” and “Sales taxes.” From either interface, you can create a new tax.

When creating a new tax, assign it a name (e.g., “State Sales Tax” or “Local Tax”) and specify the percentage rate. Select the locations where this tax rate will apply. You must also choose between “additive” and “inclusive” tax applications.

Additive tax means the tax amount is calculated and added to the item’s listed price, appearing as a separate line item on the receipt. Inclusive tax means the listed item price already contains the tax, so the tax amount is embedded within the total. After configuring the name, rate, location, and calculation method, you can set the default application for the tax. This allows you to apply it to all current and future taxable items, select specific items or categories, or apply it to custom amounts entered during a sale. Save the new tax rate.

Applying Taxes to Transactions and Items

Once tax rates are set up, applying them to sales transactions is an automated process. Square automatically calculates the tax based on configured rates and item prices when items are added to a cart. If a tax was not set as a default for all items, you can still apply it to specific items during a transaction.

For tax-exempt customers or sales, Square allows for adjustments. You can modify or remove taxes for individual transactions at the point of sale. This ensures the correct tax application for each sale.

Managing Taxes for Different Situations

Square helps manage taxes for businesses operating in multiple locations or selling online. For businesses with multiple physical locations, Square allows you to set up distinct tax rates for each location within the same account. Creating a new point-of-sale location may automatically add that area to your tax enrollments, simplifying localized tax setup.

For online sales through a Square Online Store, taxes can be calculated automatically. Square can calculate taxes based on the customer’s shipping address or your business’s location. You can also manually configure tax settings for your online store, including whether shipping fees should be taxed.

International transactions need careful attention, as Square’s tax tools primarily focus on domestic U.S. sales tax. While Square allows you to select a tax rate for international sales from a dropdown menu, businesses are responsible for understanding and complying with international tax laws, such as Value Added Tax (VAT) or Goods and Services Tax (GST). Consult a tax professional for international sales tax obligations.

Square provides tools to handle tax-exempt sales. You can create specific tax exemption rules based on criteria like item price or total transaction amount. These rules specify when a tax should not be applied, and they can be applied to individual items or entire categories.

Your Obligations Beyond Square

While Square helps calculate and collect sales tax, business owners are responsible for remitting these collected taxes to the appropriate government authorities. After collecting sales tax through Square, businesses must periodically file tax returns and pay the sales tax to state and local governments. Filing frequency varies, typically monthly or quarterly, depending on sales volume and jurisdictional requirements.

To assist with filing, Square generates reports accessible through your Square Dashboard. Sales tax reports are found under the “Reports” section, within “Accounting” or “Sales taxes.” These reports detail collected taxes, which can be exported and used to prepare sales tax returns. Businesses should consult a tax professional or review local tax laws to ensure accurate reporting and timely remittance.