The NBA’s tax apron is a value set about $7 million above the Luxury Tax threshold each season. It serves as a “hard cap” for teams that have triggered certain conditions in their roster building. From the 2023-24 season there will be a second tax apron in place, set about $10.5 million above the first apron that has the effect of severely limiting teams roster building capabilities if exceeded. The NBA tax apron’s purpose is to prevent teams building a championship level roster simply by out spending their rivals.
Our summary above should have given you a basic understanding of what the NBA Tax Apron is and why it is in place. It is however a complicated beast, so keep reading to learn what you’ll need to know to understand why your team can’t always re-sign that fan favorite role player to the big money contract he clearly deserves.
How is the NBA Tax Apron Calculated?
First of all, to understand anything to do with the Tax Apron you need to have a basic understanding of how the salary cap works. The purpose of the salary cap is to ensure that there is a fair amount of money spent on player wages AND that the NBA stays profitable. European soccer should be a warning to all leagues that allowing player wages to escalate unchecked can ruin the party for everyone eventually.
Balance is key, so everything starts with the NBA Salary Cap. It is calculated by the NBA ahead of each season using a pre-agreed formula and is based on players receiving 51% of Basketball Related Income via salary.
There is a safety net put in place, called the Salary floor. This is usually 90% of the salary cap for that season and is the minimum amount a franchise MUST spend on player wages that season. Any teams that fall under it have to pay the difference to the players on their roster.
That takes care of the first two lines of the table below.
| CBA Feature | 2022-23 | 2023-24 (est) | Notes |
| Salary Floor | $111,290,000 | $120,600,000 | Minimum Amount a teams roster can cost (90% of cap) |
| Salary Cap | $123,655,000 | $134,000,000 | The stated salary cap for the season |
| Luxury Tax Threshold | $150,267,000 | $162,000,000 | The level at which teams trigger luxury tax |
| Luxury Tax Apron 1 | $156,267,000 | $169,000,000 | The “Hard Cap” level teams under certain circumstances can not exceed |
| Luxury Tax Apron 2 | NA | $179,500,000 | Implemented for 2023-24 and becoming more restrictive in 2024-25 |
| Non Tax Payer Mid Level | $10,490,000 | $11,400,000 | Allows teams above the Cap but below the first Tax Apron to sign free agents |
| Tax Payer Mid Level | $6,497,000 | $7,000,000 | Allows teams paying luxury tax to sign free agents |
| Room Exception | $5,401,000 | $5,800,000 | Allows teams below the salary cap to sign free agents |
What is the NBA mid-level exception?
The NBA’s Mid Level Exception (MLE) as laid out in each CBA allows teams to go above the salary cap to sign free agents. There are three types of MLE that teams can access based on their salary cap position;
- The non-taxpayer mid-level exception for teams below the luxury tax limit ($10.49m*)
- The taxpayer mid-level exception for teams above the tax limit ($6.479m*)
- The room exception for teams below the soft salary cap ($5.401m*).
*2022-23 numbers used for illustration.
Mid level exceptions will be important later on as we discuss what the tax apron actually does.
What is the NBA’s Luxury Tax Threshold?
Once the Salary cap is established the NBA calculates the Luxury Tax Threshold. Teams whose wages fall between the Salary cap and the Luxury Tax Threshold are the good guys! This is what both the league and the NBA Players Association (NPBA) want. The Luxury Tax Threshold is usually around 21% of the Salary Cap as seen in the third line of the table above. The luxury tax threshold serves the purpose of imposing financial penalties against teams that are over the line. They go up in an incremental scale as below;
- $0-5 million above tax line: $2.50 per dollar (up to $12.5 million).
- $5-10 million above tax line: $2.75 per dollar (up to $13.75 million).
- $10-15 million above tax line: $3.50 per dollar (up to $17.5 million).
- $15-20 million above tax line: $4.25 per dollar (up to $21.25 million).
- For every additional $5 million above tax line beyond $20 million, rates increase by $0.50 per dollar.
The first Tax Apron is expected to be $7million more than the Luxury Tax Threshold for the 2023-24 season. The NBA tax apron serves as a hard cap for team salary building, but only if certain criteria are triggered. The NBA’s “Hard Cap” is triggered by one of three scenarios;
- Signing a free agent with the non-taxpayer mid-level exception.
- Signing a free agent with the bi-annual exception.
- Acquiring a free agent via sign-and-trade.
If a team doesn’t do one of these 3 things then they are not hard capped and can exceed the Tax Apron by as much as they like by signing players using Bird-rights and other means available to them. Although as detailed above, severe financial tax penalties are involved in doing so.
What is the NBA’s second tax apron?
The NBA and the NBA Players Association confirmed a new collective bargaining agreement in Spring 2023, that kicked in on July 1st 2023, when free agency opened ahead of the 2023-24 season. It will run until the end of the 2029-30 season, covering 7 full seasons.
The NBA is adding a “second apron” which will be $17.5 million above the luxury-tax threshold and will hurt high-payroll teams on the trade market.
Teams above the first Tax Apron can still “match salaries” in a trade up to 125% of the incoming salary, teams above the second Tax Apron will only be able to match up to 110% of incoming salary. Making it significantly harder to secure a super-star trade.
Another effect of the second Tax Apron is that teams above it lose the ability to use the Tax-Payer Mid-level exception. This has the effect of limiting teams over the second Apron to signing new players using only Minimum Contracts.
In a boring legal document the standout term in this CBA is “the Frozen Pick”. This means that any team going above the second Tax Apron immediately has their first round pick 7 years into the future frozen. So a team over the second Apron for the 2024-25 season would have its 2031 pick frozen, meaning it cannot be used in any trade. This has the effect of allowing teams under the second Tax Apron to use 4 first round draft picks in a trade, while teams above can only use 3.
In recent seasons the late season “waiver” market has been big business for playoff teams hoping to pick up a veteran that can tip their roster over the edge on court. Think Kevin Love showing up on the Miami Heat as they made their way to the Finals in 2023. Waivers are players that have been cut from the team they started the season on, usually through an agreement to still pay a large chunk of their remaining salary up. These players are then able to be signed by any team willing to meet their (usually quite low) salary demands. Going forward teams over either apron will be prevented from signing a player waived during the regular season if that player’s pre-waiver salary was larger than the non-taxpayer mid level exception, expected to be $11.4 million for 2023-24. This means no more cut price bargain waiver players for the post season for teams over the first tax apron.
The second tax apron is a phased implementation. After the coming 2023-24 season a new rule kicks in. For teams above the second Tax Apron they will not be able to combine players in trades. So sending out multiple role players for a single high paid star, will no longer be possible for those teams sitting on a payroll so high they are above the Second Tax Apron already. At the same time, any team above even the first Tax Apron will only be able to trade exactly matching salaries, to the cent. So unless a player signed the same (Max/Mid/Min) contract in the same season as the player they are being traded for, it’s a no go.
In short. Teams are heavily incentivised to stay below the Tax Aprons if they wish to maintain any kind of roster flexibility.