- Elon Musk might pay the largest tax bill in US history in 2021, at around $12 billion.
- Sen. Elizabeth Warren accused him of not paying taxes. In the past, he's used legal means to pay very little.
- This year, however, he's paying taxes on the stocks he's selling. With options expiring, that bill was unavoidable.
Elon Musk, the world's richest man, will probably end up with the country's biggest tax bill — after years of (legally) paying very little.
Musk, the CEO of Tesla Motors, is projected to pay more than $8.2 billion in taxes on stock he sold in 2021, Forbes estimates. Because he sold nearly $13 billion in stocks through December 13 of this year, Musk might foot the largest tax bill in US history.
This comes on the heels of his Twitter sparring with Senator Elizabeth Warren, who said on Tuesday that the Tesla CEO should "actually pay taxes and stop freeloading off everyone else."
Musk insulted her in response, also saying that he "will pay more taxes than any American in history this year."
There are ways that his tax bill could be even larger than it currently is. Though Musk moved from California to Texas in 2020, his former home state of California could tax Musk on the options he earned while living there. Between state and federal taxes, Musk could end up with an overall tax rate higher than 50%.
Taxes on his stock, nearly a billion in Net Investment Income Tax, and the billions he likely owes California could add up to about $12 billion in total.
Why Musk is paying a hefty sum in 2021
Warren wasn't completely off the mark when she said Musk doesn't pay taxes, however. Historically, he's paid little to none. Musk paid $455 million in federal income taxes between 2014 and 2018, while his wealth grew to $13.9 billion. He also paid no federal income taxes in 2018.
Musk's companies have received a slew of government incentives, grants, tax breaks, and discounts that have reduced or eliminated the cash he owes over the years.
This year is different, because Musk is being taxed on shares he sold over the last two months. Musk paid no federal income taxes in 2018, for instance, but he also didn't sell any shares of Tesla to realize that income.
In November, Musk said he would sell 10% of his Tesla stock based on the outcome of a Twitter poll. So far, he's sold about 3.2% of them, and could accrue another $7 billion in federal taxes if he commits to the entire 10%.
There are also ways he can shrink the price tag: donating Tesla shares or cash to his Musk Foundation, a charity, or offering them directly to nonprofit organizations.
Regardless of the Twitter poll, it made financial sense for Musk to sell his shares. He was awarded them in 2012 as a part of a compensation plan, as he doesn't take a salary or cash bonus as CEO of Tesla. In the near-decade since he received the award, his gain on the shares have grown to about $28 billion in worth.
His stock options expire in August 2022 — in order to exercise them, Musk needs to pay income taxes on his gains. Musk has a total of around 22.9 million options that expire next year, according to Tesla's most recent proxy statement filed with the SEC. Those options give Musk the right to buy shares of the electric automaker's stock at $6.24 each. At Tesla's Wednesday closing price of about $976 a share, then, he'd realize around $22.2 billion from exercising those options.
At the current highest federal income tax rate of 37%, Musk would owe about $8.2 billion. Add in the post-financial-crisis Net Investment Income Tax of 3.8%, and that's another $842 million to the feds. Finally, Musk will likely owe income tax to his former home state of California, at a top marginal rate of 13.3%, adding in another $2.9 billion. Add it all up, and the total bill comes to just shy of $12 billion.
It's worth noting that this is something of a lower estimate on the range of taxes the world's richest man could end up owing this year. Musk has been exercising his options over the last couple months, and many of those gains would have come at a time when Tesla's stock price was even higher — the company's stock closed at $1,229.91 on November 4, meaning any options exercised at that time would carry an even higher tax burden. Musk has also been undertaking stock sales separately from the options exercises, and would likely owe taxes on those.
Musk and Tesla did not respond to Insider's request for comment.