Billionaire and Tesla CEO Elon Musk stated in a tweet today, December 20th, 2021, that he will pay more than $11 billion in taxes this year, potentially setting a new record for the amount of annual tax paid by a single individual. “For those wondering, I will pay over $11 billion in taxes this year,” he stated in a tweet earlier today.
Musk has a net worth of $243 billion, making him the wealthiest person on the planet, according to the Bloomberg Billionaires Index, but instead of a salary, he is compensated through stock awards. This simply means that if he needs money, he can borrow it by pledging his stock holdings as collateral, which has no tax implications.Musk and other billionaires are facing more criticism over the amount of tax they pay as a result of the announcement by Musk. He was accused earlier this year of paying no federal taxes in 2018 despite having an estimated net worth of $243 billion (£184 billion), claiming he will pay the abnormally large tax bill this year after selling millions of Tesla shares.Musk was dubbed “the world’s wealthiest freeloader” by Senator Elizabeth Warren last week, prompting the tax payment. Members of Congress are debating the possibility of a billionaire tax, which Democrats have been supporting for the greater part of the year, including Warren. A tax similar to this was suggested as part of the Build Back Better plan, which would have affected anyone with $1 billion in assets or $100 million in annual income for three years. According to Forbes, the tax would have affected about 700 of the country’s wealthiest individuals, including Musk.
Musk responded to Warren by stating she would “realize I would pay more taxes than any American in history this year” if she “opened her eyes for 2 seconds.” In early November 2020, Musk invited his 62.5 million Twitter followers to decide the fate of a portion of his Tesla holdings. “Much has been said recently about unrealized gains being a way of tax avoidance, so I propose selling 10% of my Tesla shares,” Musk stated in a Twitter poll. “Do you agree with this? “The CEO gave individuals the choice of voting “Yes” or “No” and promised to follow the poll’s results regardless of the outcome. A total of 3,519,252 individuals voted, with 57.9% of them voting “Yes.”
Musk has sold roughly $14 billion in Tesla stock since then. However, regardless of the outcome of the vote, Musk would have had to start selling down his 23% interest in Tesla, since he faced a huge tax bill on share options granted to him in 2012 and slated to expire in August 2022. He must pay tax on the profit in order to exercise the options. Tesla stock has increased by more than 20,000% in the last ten years.
Recall that on Monday after Musk asked his followers to vote, Tesla shares fell 2%, momentarily dropping below $900 for the first time since October. The stock is up for the year, but it has lost approximately a quarter of its value since Musk’s Twitter poll and subsequent stock sales.
According to a regulatory filing, he has until August 2022 to convert around 22.9 million vested stock options into shares or let them expire worthless. He’d need roughly $143 million to exercise those options, and if he did, he’d owe more than $9 billion in federal income and Medicare taxes.
Musk and other tech CEOs have been criticised for how much they pay in taxes each year. Musk and others have earned fortunes in billions of dollars despite paying very little in federal taxes, according to the investigative website ProPublica. This can be attributable to the way their earnings are structured. According to ProPublica, the conduct was legal, but tax documents show how the ultra-rich reduce their taxes by taking out loans or using their stock holdings as collateral.
The focus on Musk’s earnings comes amid concerns over his previous tax returns. While Musk’s wealth increased by approximately $14 billion from 2014 to 2018, a ProPublica investigation found that he paid $68,000 in federal income tax in 2015, $65,000 in 2017, and none in 2018. According to the study, he had a true tax rate of 3.27% between 2014 and 2018.
Musk would almost certainly face a substantial state tax bill under California law, as exercised options are recognized as remuneration earned in the state while he lived there. Even when Musk said in late 2020 that he had relocated to Texas, the California tax would almost definitely still be due to be paid. Individual income and capital gains taxes are not imposed by the state of Texas. He has also stated that Tesla’s headquarters will be relocated from Silicon Valley to Austin, Texas.
Musk previously derided a planned tax on unrealized capital gains by remarking on Twitter that the government will ultimately “run out of other people’s money and then they come for you.”