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Breaking MLB luxury tax threshold: $244 million in 2026
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MLB luxury tax threshold: $244 million in 2026

MLB’s 2026 luxury-tax line is $244 million. Clubs above it face escalating tax rates, surcharge tiers and, at $40 million over, a draft-pick penalty.

Deshawn Carter

By Deshawn Carter · Sports Writer

3 min read

MLB’s luxury tax threshold is $244 million for the 2026 season. MLB calls the system the Competitive Balance Tax, or CBT. Clubs that exceed the threshold are taxed on each dollar over it.

The final CBT figure is calculated after the season. MLB bases it on the average annual value of contracts for players on the 40-man roster, plus additional player benefits.

MLB luxury tax threshold by season

Under the 2022-26 collective bargaining agreement, the CBT threshold rose each year:

  • 2022: $230 million
  • 2023: $233 million
  • 2024: $237 million
  • 2025: $241 million
  • 2026: $244 million

What counts toward CBT payroll?

MLB uses the average annual value, or AAV, of contracts for players on the 40-man roster, plus additional player benefits. If a player signs an extension that starts in a later season, MLB says the player’s CBT AAV does not change until that new deal begins.

That is why a live payroll tracker is not a final tax determination. Spotrac describes its figures as payroll-data-based and says outside revenue sources are adjusted when available after the regular season.

The base tax rates

The rate on a club’s overage rises with consecutive seasons above the threshold:

  • First consecutive year over: 20%
  • Second consecutive year over: 30%
  • Third consecutive year or more: 50%

A club that finishes below the threshold for one season resets its penalty level. Its next season over the line starts at the 20% base rate.

Illustrative calculation

A first-time CBT payer with a final CBT figure of $254 million in 2026 would be $10 million over the $244 million threshold.

$10 million × 20% = $2 million in base CBT tax. Because the overage is below $20 million, this example does not reach a surcharge band.

Surcharge bands

MLB applies surcharge tiers beginning $20 million above the base threshold. In 2026, that starts at a CBT figure of $264 million.

  • $20 million to $40 million over: 12% surcharge
  • $40 million to $60 million over: 42.5% surcharge for a first-year offender, or 45% for a consecutive offender
  • $60 million or more over: 60% surcharge

The draft-pick penalty at $40 million over

A club at least $40 million above the base threshold has its highest selection in the next Rule 4 Draft moved back 10 places. If that pick is in the top six, the club’s second-highest selection moves back 10 places instead.

For 2026, that consequence begins at a final CBT figure of $284 million or more.

The short version

The 2026 MLB luxury-tax threshold is $244 million. A club over that line is taxed on its overage at a 20%, 30% or 50% base rate based on consecutive years above the threshold. Surcharges start at $20 million over, and the draft-pick penalty begins at $40 million over.

Frequently asked questions

How is an MLB team’s Competitive Balance Tax payroll calculated?

MLB uses the average annual value of contracts for players on the 40-man roster, plus additional player benefits. MLB calculates each club’s final CBT figure after the season.

How does a team reset its MLB luxury-tax penalty rate?

A club resets its penalty level by finishing below the CBT threshold for one season. Its next season above the threshold is treated as a first consecutive year over and carries a 20% base tax rate.

What draft-pick penalty applies to teams far above the CBT threshold?

A club at least $40 million above the base threshold has its highest selection in the next Rule 4 Draft moved back 10 places. If that selection is in the top six, its second-highest pick moves back 10 places instead.

Sources