The world’s richest man Elon Musk is expected to make what could be the largest ever individual tax payment to the Internal Revenue Service this year. “For those wondering, I will pay over $11 billion in taxes this year,” the Tesla and SpaceX CEO tweeted Sunday night.
It was apparently part of his response to Sen. Elizabeth Warren (D-Mass)’s claim last week that he does not pay enough taxes and is “freeloading off everyone else.”
“Let’s change the rigged tax code so The Person of the Year will actually pay taxes and stop freeloading off everyone else,” Sen. Warren tweeted last Monday tagging a Boston Globe article about Musk being named TIME magazine’s “Person of the Year.”
In response Musk tweeted, “If you opened your eyes for 2 seconds, you would realize I will pay more taxes than any American in history this year.”
That $11 billion figure is in line with what the media has calculated based on Musk’s stock option exercise schedule. In recent weeks, the billionaire has been exercising a block of soon-to-expire Tesla stock options and cashing out millions of Tesla shares to cover tax withholding requirements related to the exercise.
The stock options, awarded to Musk in 2012 as part of a performance-based compensation package, allow him to buy roughly 22.8 million Tesla shares at $6.24 apiece and sell them instantly at market price. Gains from this type of transaction are subject to the top federal and state income rates, which, in Musk’s case, would add up to over 50 percent.
He paid a similar tax bill of approximately $583 million in 2016 when exercising over $1 billion in stock options.
While $11 billion is an unthinkably large number by any standards of personal finance, it pales in comparison to Musk’s wealth gain in 2021, which amounts to $87 billion, according to Bloomberg Billionaires Index. His total fortune last stood at $243 billion.
It’s even more sobering when considering how little taxes the Tesla CEO paid in recent years.
A ProPublica investigation of leaked IRS data in June revealed that Musk paid less than $70,000 in federal income tax in 2015 and 2017, and nothing at all in 2018. Even factoring in his large 2016 tax bill, his five-year “true tax rate” from 2014 to 2018, calculated based on his wealth gain over the period, was only 3.27 percent.
“This is a great lesson for the public in denominators. A large number over a much, much larger number is actually a small percentage,” ProPublica reporters Jesse Eisinger and Paul Kiel, who broke the billionaire tax avoidance story, told Observer in an email.
It’s unclear how much tax Musk paid in 2019 and 2020. His official salary was $23,760 in 2019 and zero in 2020, according to Tesla’s SEC filings.
The traditional effective tax rate, which compares taxes to income, “has real shortcomings when judging the tax burden of the ultrawealthy,” Eisinger and Kiel said. “The ultrawealthy can control the time and place of their income and often keep it low. The benefit of that is that they can go years paying very low income taxes, even zero as Musk did in 2018.”
The ProPublica report didn’t include state tax information. Musk said he paid income taxes in California proportionate to his salary and time spent there. That won’t be the case moving forward, though, because earlier this year he moved his residence as well as Tesla’s headquarter to Texas, which doesn’t have a state corporate or income tax.