Elon Musk’s Tesla Pay Deal May Spark a Record $73B Tax Bill

Key Takeaways

• A Delaware court has upheld the decision to revoke Elon Musk’s massive Tesla pay deal.
• The deal was struck down on the grounds that Musk held undue influence over Tesla’s board.
• If the board is forced to reissue the package, Musk could owe as much as $73.5 billion in tax.

Tesla has been served another blow in its efforts to award CEO Elon Musk a massive pay package worth more than $129 billion at the firm’s current share price.

Although the firm has vowed to fight on, if it is forced to reissue the stock options, it could incur an eye-watering $73.5 billion tax bill plus additional accounting fees.

Musk’s Tesla Pay Lawsuit

Initially proposed in 2018, Musk’s package was worth $56 billion at the time but has inflated significantly since in line with Tesla’s stock market growth.

Although the company’s board approved the deal, Tesla shareholder Richard Tornetta sued to prevent the payout, arguing that the board wasn’t independent enough.

Granting Tornetta’s request, Chancellor Kathleen McCormick of the Delaware Court of Chancery voided Musk’s pay package in January 2024. However, Tesla moved to appeal the decision.

What’s at Stake?

In the latest development, McCormick upheld her original ruling, leaving the company with only two options: pursue a further appeal with Delaware’s Supreme Court or award its CEO a new options package.

A similar package could incur a much higher tax bill if it pursues the latter option.

Tax expert Schuyler M. Moore explains that if Tesla successfully appeals McCormick’s ruling, Musk will pay the standard federal rate of 37 percent tax for stock compensation when he exercises his options.

However, if the board issues a new plan on similar terms, the options would be treated as “in the money”, i.e. as guaranteed, rather than provisional on Tesla’s stock market performance as per the original deal.

As such, they would be subject to an additional 20 percent tax.

The Largest Ever Federal Tax Bill

Whether he pays the 37 percent or 57 percent rate, Musk’s tax bill for the proposed package will likely be the largest in history—a title he already holds.

In 2021, CNBC estimated that the billionaire stood to pay $15 billion in state and federal taxes from selling Tesla shares. Musk himself later claimed that he “paid the most taxes ever in history” that year.