business tax tips

Payee, payor, payer – what’s the difference? Let’s break down these designations so you can distinguish who pays what on your taxes and transactions. Payee The “ee” suffix can be confusing for many, and that’s why we wanted to walk through the definition of payee with you today. The “ee” usually denotes that the role in question is the receiver of the action. For example, if your business or industry wants to honor you at a conference with an award or other accolades, you would be the honoree. Therefore, the payee is the party that will receive payment in exchange of products or services. You can have a single payee in a transaction or there can be multiple. For example, when you receive a tax refund, for your personal or business taxes, you are the payee. The IRS is providing the payment, and you are receiving it. Designating your role as payee also often means identifying whether the transactions are subject to income or other taxes – the payee in a retail transaction (the business) will have to pay tax on that revenue, for example. Investment management transactions (with retirement or other investment-focused accounts) will often include payee accounts where the business will receive payments for the benefit of a client’s separate account. Payor/Payer Conversely, if the payee is the one who receives the payment, then the payor (or payer) is the one providing or sending out that payment. When it comes to payor vs. payer, the only true distinction is that “payor” is the preferred spelling for legal documents and instances. For tax purposes, the payor is the payment provider. Some examples of payors would be an employer paying their workers, a person writing a check, and any other entity that is settling a financial obligation. Where It Gets Tricky For many businesses, individuals, and independent contractors, transactions and tax relationships can get complicated quickly. Miscommunication abounds in many areas of business, and that’s why …

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