You Deserve Your Tax Refund Today
80% of Americans unknowingly overpay taxes from each paycheck. It takes 14 months to get it back. Nobody is trying to fix this.
It takes 2 days (T+2) to settle stocks so Robinhood is trying to fix that. It takes 24 hours to settle a wire transfer and crypto is trying to fix that. It takes shocking 14+ months (T+14M) to settle your income tax bill and nobody is trying to fix this..yet.
In the US, It takes roughly 14 months from the day you first pay your taxes to the day you can file your taxes and get back any excess taxes paid as a tax refund. We co-founded Column Tax to fix this and make income tax settlements close to real-time.
What is a Tax refund?
To deeply understand the severity (and the business opportunity) of this 14-month settlement delay, you should know how tax refunds actually work. For most people, a tax refund is the “free money” received from the government. This is only partially true.
Your tax refund consists of two elements:
Actual cash tax payments you made throughout the year
“Payroll withholdings” is the technical term for this. When you start a job, you fill out a Form W-4. Based on the input of this form, your employer takes out a certain amount of taxes from each paycheck and sends it to the government. The exact amount taken out from each paycheck for taxes is set by the IRS withholding tables that employers are required to follow. These tables are conservative by design so you end up allocating more taxes than needed leading to a lower take-home pay.
Tax credits (Non-cash tax payments)
Tax credits are in place to directly reduce your tax bill in addition to your actual cash tax payments. Simply put, these are discounts given by the government to reduce your tax bill. For example, Child & dependent care tax credit gives you a $2,000 tax credit for each qualified child. This $2,000 can be used to offset your tax bill.
If your income tax bill is lower than the total of actual cash tax payments you made (payroll withholdings) and tax credits, you get a tax refund. This is the situation for most Americans.
Tax bill < (Tax payments + Tax credits)--> Tax refund on the Tax day
If your income tax bill is higher than the total of actual cash tax payments you made and the tax credits, you will have to pay more taxes when you file your tax return.
Tax bill > (Tax payments + Tax credits) = Tax owed to the government
In a perfect world, your income tax bill should equal the total cash tax payments made and tax credits, resulting in a zero tax refund. This results in more cash in hand after each paycheck so you have more money to fund living expenses, pay off debt faster and invest.
Tax bill = (Tax payments + Tax credits) --> Zero tax refund
IRS Form 1040 is the place where you report your annual income, do the above calculations and settle your tax bill with the IRS.
T+14M delay to settle your taxes
Currently, you have to wait over 14 months to settle your tax bill with the IRS and get back any excess taxes paid. For example, say you started a job on January 1, 2020, and withheld taxes from each paycheck based on conservative IRS tables. You have to wait until February 12, 2021, to file your tax return and get excess taxes paid as a refund. From January 1, 2020, to February 12, 2021 (~14 months), you leave your hard-earned money with the government and earn zero interest. Lower take-home pay caused by excess paycheck withholdings contributes to people living pay-check-to-paycheck, taking high-interest payday loans, accumulating credit card debt, and having less disposable income to invest.
This typical 14-month settlement delay is actually getting worse. As of May 1, 2021, 30 millions+ tax returns still remain backlogged in the IRS causing delays in millions of taxpayer refunds. This is due to pandemic-related issues, last-minute changes to the tax laws, and reduced staffing.
What is Column Tax?
You can take advantage of the computer code and the tax code to make tax settlement periods close to zero days.
Column Tax is a mobile app built to achieve T+0 tax settlement time. It is a real-time robo tax adviser that can sit on top of any fintech app (Robinhood, Chime and etc.).
It connects with your payroll provider, calculates your real-time tax bill, and optimizes your payroll withholdings. Payroll withholding optimization ensures that you allocate just enough money from each paycheck towards taxes. This increases your take-home pay by smartly frontloading the tax refund you get on April 15th of the following year. In the future, Column Tax expects to prepay tax credits - which is only available when you file a return in the following year - on each paycheck.
Without Column Tax, this type of calculation would only be possible by consulting with a qualified CPA. Many Americans don’t have access to nor money to afford CPAs. If you are interested in building with us, please reach out. Stay tuned for more info on this!
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