The Boston Celtics have been aggressively looking to lower their expenses due to the 2025-2026 NBA salary cap and luxury tax penalties. These penalties are complicated to begin with as it relates to first time offenders. Therefor, I wanted to try to simplify and explain the 2026-2026 NBA salary cap & luxury tax rules.
Quick explanation of the 2026 NBA salary cap & luxury tax penalties:
In the NBA, you have a salary cap. If your expenses exceed that salary cap, you have to pay a penalty. There are different tiers of penalties and those penalties can multiply year over year. Now, let’s get in detail.
- 2025-2026 NBA Salary Cap: $154,600,000
- 2025-2026 NBA Luxury Tax: $187,900,000
- 2025-2026 NBA First Apron: $195,900,000
- 2025-2026 NBA Second Apron: $207,000,000
Note: Will often be referencing 2024-2025 NBA season as a lot of the math in the 2026 NBA season are estimates as of June 2025.
What got me interested in the 2026 NBA salary cap & luxury tax in the first place.
The Boston Celtics of course.
An in-depth explanation of the 2026 NBA salary cap & luxury tax penalties.
Luxury Tax Penalties
The luxury tax applies to teams whose payroll exceeds the luxury tax threshold ($170.814 million for 2024-25). Teams pay a tax on every dollar they are over the threshold, with rates escalating based on how far over they are and whether they are “repeat offenders” (teams that have paid the tax in three of the prior four seasons).
- Tax Rates (Non-Repeater):
- $0–$5 million over: $1.50 per dollar
- $5–$10 million over: $1.75 per dollar
- $10–$15 million over: $2.50 per dollar
- $15–$20 million over: $3.25 per dollar
- For every additional $5 million, the rate increases by $0.50 (e.g., $3.75 for $20–$25 million, $4.25 for $25–$30 million, etc.).
- Tax Rates (Repeater):
- Same brackets as above, but add $1.00 per dollar to each tier (e.g., $2.50 for $0–$5 million, $2.75 for $5–$10 million, $3.50 for $10–$15 million, etc.).
- Example: A non-repeater team $12 million over the tax line pays:
- $5 million × $1.50 = $7.5 million
- $5 million × $1.75 = $8.75 million
- $2 million × $2.50 = $5 million
- Total tax: $21.25 million
- Additional Penalty: Teams receive a portion of the luxury tax payments as a distribution if they are under the tax threshold, but this is not a direct penalty for exceeding teams.
The luxury tax is a financial penalty only, with no roster-building restrictions unless the team also exceeds an apron.
First Apron Penalties
The first apron ($178.132 million for 2024-25) is a hard cap for teams that use certain salary cap exceptions. Teams above the first apron at the end of the regular season face roster-building restrictions, but no additional financial penalties beyond the luxury tax (if applicable).
- Restrictions:
- Cannot use the Bi-Annual Exception (BAE, $4.681 million for 2024-25) to sign free agents.
- Cannot sign a player waived during the season if their pre-waiver salary was above the Non-Taxpayer Mid-Level Exception (NTMLE, $12.822 million for 2024-25).
- Cannot use more than 100% of a player’s prior salary in a sign-and-trade deal (previously, teams could take back 125%).
- Cannot use the Taxpayer Mid-Level Exception (TMLE, $5.183 million for 2024-25) in a way that pushes them over the first apron (hard cap).
- Cannot aggregate (combine) player salaries in a trade to match a higher incoming salary.
- Cannot send cash in trades to offset salary differences.
- Cannot trade a first-round pick seven years out (e.g., in 2024-25, a 2032 pick).
- Hard Cap Trigger: Exceeding the first apron via specific actions (e.g., using the NTMLE, BAE, or a sign-and-trade) imposes a hard cap at the first apron, meaning the team cannot exceed $178.132 million for the entire season, even with later moves.
These restrictions limit a team’s ability to add talent or make flexible roster moves, making it critical to stay under or carefully manage payroll.
Second Apron Penalties
The second apron ($188.931 million for 2024-25) imposes the most severe restrictions, designed to deter high-spending teams from excessive payrolls. Teams above the second apron face all first apron restrictions plus additional, harsher penalties. Like the first apron, there are no extra financial penalties beyond the luxury tax, but the roster-building limitations are significant.
- Additional Restrictions (On Top of First Apron):
- Cannot use the Taxpayer Mid-Level Exception (TMLE) at all.
- Cannot aggregate player salaries in trades (same as first apron, but more restrictive in practice due to limited exceptions).
- Traded players can only be replaced with players on minimum contracts (via the Minimum Player Salary Exception).
- Draft pick penalties:
- A team’s first-round pick in the draft seven years out (e.g., 2032 for 2024-25) is automatically moved to the end of the first round if the team remains above the second apron.
- If the team is above the second apron in two consecutive seasons, that pick is frozen (cannot be traded) and remains at the end of the first round.
- Cannot take back more salary in a trade than they send out (100% salary matching, no 125% rule).
- Cannot send out cash in trades (same as first apron).
- Hard Cap Trigger: Using certain exceptions (e.g., NTMLE, BAE, or sign-and-trade) while above the second apron imposes a hard cap at the second apron ($188.931 million), locking the team under that threshold for the season.
- Repeater Impact: Teams above the second apron in two of four years are treated as repeaters for luxury tax purposes, increasing their tax rates (as outlined above).
Key Notes:
- Financial Impact: The luxury tax is the only direct monetary penalty, but the escalating rates (especially for repeaters) can result in massive bills. For example, a team $30 million over the tax line could owe over $100 million in tax as a repeater.
- Roster Restrictions: The first and second aprons are about limiting flexibility, not adding financial penalties. The second apron’s draft pick penalties and trade restrictions are particularly punitive, aiming to curb superteams.
- Mid-Season Strategy: Teams can avoid penalties by getting under the luxury tax or aprons by the last day of the regular season. For example, the Los Angeles Clippers shed salary mid-season in 2023-24 to avoid the second apron’s restrictions.
- Practical Example: The Denver Nuggets, projected to be above the second apron in 2024-25, may face challenges replacing players like Kentavious Caldwell-Pope due to the inability to use the TMLE or aggregate salaries in trades.
Summary Table (2025-26 Season, Estimated):
| Threshold | Estimated Amount | Penalties/Restrictions |
|---|---|---|
| Luxury Tax | $187.896M | Financial tax: – Non-repeater: $1.50–$4.75+ per dollar over (e.g., $1.50 for $0–$5M, $1.75 for $5–$10M, etc.). – Repeater: $2.50–$5.75+ per dollar over (adds $1.00 per tier). No roster restrictions. |
| First Apron | $195.956M | Hard cap if triggered (e.g., via NTMLE, BAE, or sign-and-trade). Restrictions: – No BAE. – No signing waived players above NTMLE. – Sign-and-trades limited to 100% salary. – No salary aggregation in trades. – No cash in trades. – Cannot trade first-round pick 7 years out (e.g., 2033). |
| Second Apron | $207.833M | All first apron restrictions plus: – No TMLE. – Trades limited to minimum contract replacements. – Draft pick penalties: 2033 first-round pick moved to end of round; frozen if over second apron in 2 consecutive years. – 100% salary matching in trades (no 125% rule). – No cash in trades. |
Do teams have to be below the luxury tax to avoid penalties at the beginning of the season or the end?
In the NBA, luxury tax penalties are calculated based on a team’s roster and total payroll as of the last day of the regular season, not at the beginning of the season. This means teams can absolutely get under the luxury tax threshold mid-season to avoid or reduce penalties, and many teams strategically make trades or roster moves before the trade deadline (typically in early February) to achieve this.
Key Points:
- Calculation Timing: The luxury tax is determined at the end of the regular season, using the team’s total salary on the final day. This includes player salaries, bonuses (likely and unlikely incentives are handled differently), and other cap-related adjustments, but excludes cap holds and exceptions.
- Mid-Season Adjustments: Teams can reduce their payroll mid-season through trades, buyouts, or waiving players to get under the luxury tax threshold ($170.814 million for the 2024-25 season). For example, the New Orleans Pelicans moved out of tax territory in the 2023-24 season by trading Kira Lewis’ expiring contract in January.
- Trade Deadline Importance: The trade deadline (February 6 for the 2024-25 season) is often the last significant opportunity for teams to make meaningful salary-reducing moves. Teams may dump salaries or avoid trades that would push them over the tax line.
- Apron Restrictions: Teams must also consider the first apron ($178.132 million) and second apron ($188.931 million) thresholds, which impose additional roster-building restrictions if exceeded at season’s end. Getting under these aprons mid-season can restore flexibility, but teams must stay under to avoid triggering a hard cap.
- Example: The Boston Celtics slipped below the luxury tax threshold at the 2021-22 trade deadline by making deals to reduce their team salary, demonstrating how mid-season moves can help avoid penalties.
- Repeater Tax: Teams that exceed the luxury tax in three of the prior four seasons face higher “repeater” tax rates. Ducking the tax in a season can help reset this status, providing long-term financial benefits.
Do you have any questions about the 2026 NBA salary cap or luxury tax penalties? Reach me on X @persources!