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At Magna, we’re always innovating to make token management easier and more efficient for Web3 projects. As part of our ongoing mission to streamline complex workflows, we’re excited to talk about one of the features that our customers love most: Tax Withholding Support.
Managing token distributions has always been at the core of what we do, but with the addition of tax withholding functionality, our platform now offers an even more comprehensive solution for companies looking to automate and simplify token-related payroll processes, particularly around token bonuses, Restricted Token Units (RTUs), or other types of token awards that might be taxable upon delivery or settlement. Here’s how it works and how it can save your team both time and effort.
The Problem: Complexity in Token Distribution with Tax Withholding
Distributing tokens to employees or stakeholders can be complicated. Even with payroll tools calculating an individual’s tax rates, teams often need to manually calculate and track things like:
- How many gross tokens are outstanding for each employee where each might have a different vesting schedule, unlock schedule, and start dates?
- What is the value of those tokens?
- How many tokens need to be withheld based on their tax rate?
Magna’s solution: Automatic Token Distribution with Tax Withholding
With the Tax Withholding Support feature, Magna clients can now distribute net of withholding tokens seamlessly. This means that you don’t have to manually track gross tokens outstanding, manually calculate net tokens deliverable, or manually distribute the tokens to each individual—Magna automates the process and ensures accuracy at every step in bulk.
How it works:
- Track Vesting Schedules and Gross Distributions:
Magna keeps track of token vesting schedules, unlock schedules, and the gross value of the tokens being distributed. After each distribution or settlement, Magna keeps track of both the gross tokens that were settled as well as the net tokens actually delivered.
- Calculate the Gross Value of the Token Distribution:
Using the “Withhold and Transfer” flow, Magna provides a templated way for teams to fill in the token price to use for the tax calculations, whether based on a point-in-time, a sliding window, or a manual price, to calculate the gross value of the tokens outstanding for each employee.
There is a lot of flexibility in these parameters. The user carrying out this flow can select a point-in-time in the past, if they want to run the distribution “as of” a date in the past.
- Export this Data to your HRIS, Payroll System, or Accounting Team:
Magna allows you to easily export the data to an HRIS system like Rippling or Deel, or in a format that your accounting or tax team can fill out. For Rippling, we provide platform-specific formats for a particularly seamless workflow.
- Ingestion of Tax Rates: Magna allows users to easily upload tax rates for each individual via CSV or integrate data from payroll tools. Once the tax rates are ingested, Magna processes the distribution based on the provided net-of-tax amounts, ensuring the correct number of tokens is delivered to each recipient, as calculated by the external payroll systems or input CSV.
- Distribution of Net Tokens:
Magna then queues up an on-chain transaction to distribute the net token amount to each individual.
- Magna Maintains a detailed Record of All Transfers:
A record is kept alongside each distribution of the gross tokens, gross value, net tokens, net value, withheld tokens, withheld value, token price used for the value calculations, date of distribution, and transaction hash for future reference.
This not only ensures transparency but also makes it easy to integrate these records with your payroll systems and be able to create necessary reports for your accounting or finance team.
The entire flow above can be run through in as quickly as 2 minutes, plus the length of time it takes to calculate the tax rates in your HRIS.
Seamless Integration with HRIS Systems
The workflow is designed to be flexible and can ingest information from any HRIS provider. However, Magna’s Tax Withholding Support is particularly seamless when integrated with Rippling, one of the leading HRIS platforms. For companies using Rippling, this feature dramatically reduces the complexity of payroll by syncing tax-related data directly with the distribution of tokens.
We save you time so you can focus on building!
Some of our existing clients have already experienced the power of this feature, reducing their monthly or quarterly payroll processing times from days to just under an hour. With Magna, there’s no need to manually adjust for taxes or recalculate distributions - everything is automated, saving your team valuable time and minimizing the risk of errors.
The Future of Token Distribution: Streamlined and Scalable
Token distribution has grown from a manual, error-prone process to an automated, efficient system powered by platforms like Magna. As Web3 projects scale, they face the challenge of managing complex tokenomics, including multiple networks, vesting schedules, and tax compliance.
Magna is shaping the future by automating these complexities:
- Tax Withholding Support: Ensures compliance and accuracy, reducing payroll times from days to hours.
- Automated Vesting: Eliminates manual calculations with features like "Received Off Magna" for seamless schedule adjustments.
- Cross-Chain Compatibility: Supporting distribution across networks like Ethereum, Solana, Arbitrum, and many more.
The future of token distribution is secure, scalable, and automated; enabling projects to focus on growth and innovation.
Are you ready to streamline your token distributions?
To learn more about how Magna can help you automate token vesting, US and International employee tax withholding support, reach out to us today!
