Hey there,
You've got to turn on "Automatic Discount" if you're working on the Square side. When you enable that, you'll see the option to choose applicable categories. There's a great how-to video here: https://squareup.com/help/us/en/article/3955-create-and-manage-discounts
If you're doing this from the Square Online side, you can do this in the Discount Details section under "What is Discounted" shown here:
