Unlike many other professional sports leagues, Major League Baseball doesn’t have a formal salary cap. However, it does impose financial penalties on teams that spend excessively, effectively creating a “soft cap.”
Teams whose end-of-year payroll for their 40-man roster exceeds a set threshold must pay the Competitive Balance Tax, commonly known as the luxury tax. This tax applies to every dollar spent over the limit, and the penalties become steeper for teams that surpass the threshold in consecutive seasons.
What is MLB’s Luxury Tax in 2025?
According to the 2022-26 collective bargaining agreement, the CBT or luxury tax for the 2025 season is $241 million.
In 2026, MLB’s luxury tax will rise to $244 million for the final season of this current CBA.
MLB owners will likely push for a salary cap again in the next CBA ahead of the 2027 season.
Punishments for Exceeding MLB Luxury Tax
Teams that exceed the Competitive Balance Tax (CBT) threshold based on their 40-man roster payroll at the end of the season face escalating tax rates, determined by how many consecutive years they’ve gone over the limit.
- First year over the threshold: 20% tax
- Second consecutive year: 30% tax
- Third straight year or more: 50% tax
If a team stays under the CBT threshold for a full season, the penalty scale resets.
In addition to the base tax, surcharges apply to teams that exceed the CBT by significant margins:
- $20 million to $40 million over: 12% surcharge.
- $40 million to $60 million over: 42.5% surcharge in the first year, increasing to 45% for each consecutive year over; the team’s highest pick in the following draft is also moved back 10 spots.
- $60 million or more over: 60% surcharge, plus the 10-spot penalty on the team’s highest draft pick in the following draft.
MLB Team That Exceeded Luxury Tax in 2024
Nine teams surpassed the $237 million luxury tax at the end of the 2024 MLB season.
Here are the nine teams and what they had to pay:
- Dodgers: $103 million
- Mets: $97.1 million
- Yankees: $62.5 million
- Phillies: $14.4 million
- Braves: $14 million
- Rangers: $10.8 million
- Astros: $6.5 million
- Giants: $2.4 million
- Cubs: $570,000
The Dodgers, Mets, Yankees, and Phillies have all paid the tax in at least three straight seasons. The Rangers and Braves have done so in 2023 and 2024.
MLB Teams That Might Exceed Luxury Tax in 2025
According to Spotrac’s MLB tax tracker, six teams are set to exceed the CBT of $241 million in 2025.
- Dodgers (potential tax bill: $156 million)
- Mets ($74 million)
- Yankees ($50 million)
- Phillies ($36 million)
- Blue Jays ($10 million)
- Padres ($10 million)
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