Squidward died in SB-129
In an episode called "SB-129" (first season) Squidward accidentally gets frozen for 2000 years, finds a time machine, and gets transported to a place known only as "nowhere."
In the process of finding himself in "nowhere," the time machine malfunctions. "Nowhere" actually becomes somewhere—
Squidward actually died when the time machine went haywire and that the "nowhere" was Purgatory, the waiting room of the afterlife.
So in effect, the Squidward from the first season was replaced with another Squidward when he wishes for the time machine to take him back to his own time.











