Tesla shareholders on November 6, 2025, approved a new performance award for chief executive Elon Musk at the company's annual meeting in Austin, Texas, with roughly 75% of voting shares in favor, CNBC reported. The grant could be worth about $1 trillion if every target is hit. Beyond the headlines, it is a textbook case of how performance-based restricted stock is structured and taxed, a question that matters to thousands of executives with far smaller awards.
What changed
According to Tesla's 2025 proxy statement, the 2025 CEO Performance Award covers 423,743,904 shares of restricted common stock, split into 12 equal tranches of 35,311,992 shares. Each tranche is earned only when Tesla reaches both a market capitalization milestone and an operational milestone. The first market value hurdle is $2 trillion; the last is $8.5 trillion. Operational goals include 20 million cumulative vehicle deliveries, 1 million humanoid robots delivered and adjusted profit targets that climb from $50 billion to $400 billion, according to CNBC.
Three design features stand out for tax purposes. First, the grant is restricted stock rather than options. Second, earned shares generally do not vest until Musk has completed at least 7.5 years of service, and a five-year holding period applies. Third, each vested share carries an offset amount of $334.09, the stock's closing price on the September 3, 2025 grant date. Musk can pay that amount in cash; otherwise it is settled by reducing the number of shares he receives. The proxy states taxes may be paid in cash, by selling vested shares or through net settlement, in which Tesla withholds shares and pays the equivalent cash to tax authorities. The board put a preliminary fair value on the award of roughly $88 billion, NPR noted.
Who is affected
Directly, one shareholder and one company. Indirectly, the structure mirrors awards now common across public and late-stage private companies: performance stock units or restricted shares that vest only if revenue, earnings or stock price targets are met, often with post-vesting holding requirements. Executives, founders and senior engineers with these grants face the same core questions about timing, withholding and concentration.
The after-tax math
Under IRS Publication 525, restricted property is generally not taxed while it remains subject to a substantial risk of forfeiture. When it vests, the recipient reports ordinary compensation income equal to the fair market value of the shares minus any amount paid for them. The holding period for later capital gains starts at that point, and the value recognized becomes the tax basis.
Section 83(b) offers an alternative: an election filed within 30 days of the transfer to include the property in income at grant-date value. Later appreciation is then taxed as capital gain rather than wages. The catch, as Publication 525 explains, is that if the shares are later forfeited, no deduction is allowed for the income already reported. For a grant that depends on hitting ambitious milestones, that forfeiture risk is central to the decision.
Example, with round numbers: an executive holds 10,000 performance shares with an offset or purchase price of $100 per share. The shares vest when the stock trades at $300.
| Item | Amount |
|---|---|
| Value at vesting (10,000 x $300) | $3,000,000 |
| Amount paid (10,000 x $100) | $1,000,000 |
| Ordinary income at vesting | $2,000,000 |
| Federal income tax at 37% | $740,000 |
| Tax basis in shares after vesting | $300 per share |
For 2026, the 37% bracket begins at $640,600 of taxable income for single filers and $768,700 for married couples filing jointly, according to IRS inflation adjustments, so a vesting event of this size would push most of the income into the top rate. Payroll taxes and any state income tax come on top. If the stock then falls to $200 during a mandatory holding period, the executive still owes tax on income measured at $300 per share, and the $100 decline is only a capital loss when sold.
Moves to discuss with your advisor
- Whether an 83(b) election is even available for a given award, and how the probability of forfeiture changes its value.
- How net share settlement compares with paying withholding in cash, particularly when a holding period restricts later sales.
- Whether employer withholding will cover the full liability at the top bracket, or whether estimated payments are needed to avoid underpayment penalties.
- How a large single-stock position fits into overall diversification and estate plans once holding periods expire.
What to watch
Musk's 2018 pay package remains before the Delaware Supreme Court after a lower court ordered it rescinded, according to CNBC. For other executives, the more relevant signal is whether boards follow Tesla's template of long service requirements, post-vesting holds and net settlement for taxes. Those features shift when income is recognized and how much cash is needed to pay the bill, which is worth modeling well before a milestone is reached.
Sources
- First reported Tesla says shareholders approve Musk's $1 trillion pay plan with over 75% voting in favor — CNBC
- Tesla shareholders approve Elon Musk's trillion-dollar pay package — NPR
- 2025 Definitive Proxy Statement (Schedule 14A) — Tesla, Inc. (SEC filing)
- Publication 525, Taxable and Nontaxable Income — IRS
- IRS releases tax inflation adjustments for tax year 2026 (IR-2025-103) — IRS
After TAX is an independent publication. Articles are general information, not tax, legal or investment advice. Consult a licensed professional about your situation.
