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Elon Musk and Washington Senator Elizabeth Warren were recently embroiled in a Twitter feud as the latter called out the world’s richest person for paying $0 in income taxes in recent years.
The senator expressed her disappointment in Musk being named as Time’s 2021 Person of the Year and accused him of being a “freeloader”:
"Let's change the rigged tax code so The Person of the Year will actually pay taxes and stop freeloading off everyone else.”
The senator also shared an edited version of Elon Musk’s TIME magazine cover created by Americans for Tax Fairness. The new cover had the words "Tax Me" edited over a photo of Musk with a text mentioning the businessman paid $0 in federal income tax in 2018.
In response, the Tesla CEO addressed Warren as ‘Senator Karen’ and hit back at her by referencing an opinion piece accusing the senator of fraud and claiming that she lied about her Native American heritage to gain several benefits.
Elon Musk also mentioned Senator Warren reminded him of his childhood friend’s angry mother who “yelled at everyone for no reason.” Meanwhile, he also claimed that he is set to pay the largest income tax bill in US history this year.
Elizabeth Warren, along with other Democrats, has long advocated the concept of taxing wealthy Americans by placing a tax on their assets in place of just their income.
Meanwhile, an investigation by ProPublica revealed Elon Musk and several other billionaires have not paid any taxes due to not selling stock shares and having no cash income or bonus.
A look into Elon Musk’s tax rate in 2021
The world’s richest man Elon Musk has an estimated net worth of $297 billion. However, it is believed that the business mogul has paid little to no taxes in the past few years. Earlier this year it was revealed that he is funding his projects and providing for himself using his loans.
According to the ProPublica investigation, the billionaire allegedly paid less than $70,000 in federal income taxes between 2015 and 2017. The following year, he reportedly paid zero taxes despite a net worth of $152 billion at the time.
It was revealed that the entrepreneur did not have a taxable income as he borrowed money from his own company Tesla instead of taking a fixed salary. He also took loans against his company’s shares through stock options and used the amount to fund his projects.
In 2012, Elon Musk was awarded stock awards as his compensation instead of salary or cash bonus. At the time, the award was 22.8 million shares at a strike price of $6.24 per share.
The options were reportedly based on pre-arranged financial and operational targets Tesla was set to hit in the next six years. However, the options are expected to expire next year, and the Tesla CEO is likely to lose the options if he fails to exercise them by August 2022.
Elon Musk has reportedly started to exercise these options through stocks. Once the options are exercised, the value of his acquired share will be counted as income, and he will be facing a significant income tax bill.
The bill based on shares is likely to have a top federal income tax rate of 37% as well as a 3.8% net investment tax and some uncertain level of state income tax. According to CNN Business, the entrepreneur has exercised around 15 million of the 22.9 million options that are scheduled to expire.
Elon Musk is likely to face a federal tax bill of $6.4 billion as the value of the newly acquired shares was approximately $15.8 billion. As per the Securities and Exchange Commission filings made by the business magnate, he has reportedly sold 6.5 million of the newly acquired shares “to pay the withholding due on the exercise of the options.”
He began selling his shares and exercising his options last month and could exercise another four million by the end of the year. This change is likely to raise his 2020 tax bill by an additional $2 billion.
In November 2021, Elon Musk also sold 5.4 million shares from his trust, the majority of which he has held since the public offering in 2010. As the shares will be taxed at 20% based on a lower long-term capital gain, the businessman could also face an additional federal tax bill of about $1.2 billion on sales.
Therefore, in 2021 the Tesla CEO could face a federal tax bill of over $7.6 billion. The 50-year-old might also have to pay 13.3% top tax rate in California as most of his options were awarded when he was a tax resident in California.
Based on the possible figures, Musk’s combined state and federal tax rate will reportedly be 54.1%, and his hence his total tax bill will be around $15 billion by the end of the year.
