The luxury tax is a financial penalty NBA teams pay for spending above a set threshold, well above the salary cap itself. It isn't a flat fee: the more a team spends over the line, the steeper the rate gets on every additional dollar.
The tax isn't dollar-for-dollar. A team’s bill climbs in brackets, the further over the line a roster gets, the more expensive each additional dollar of salary becomes.
Rate shown is owed per $1 a team is over the tax line within that bracket. It keeps climbing $0.50 for every additional $5M beyond this, and repeat taxpayers (in the tax 3 of the last 4 seasons) pay a steeper rate on top of all of this.
Enter a team's total salary and see roughly what they'd owe.
Non-repeater tax rates. A repeat-taxpayer team would owe more.
Teams that pay the tax in three of the previous four seasons get hit with even steeper “repeater” rates on top of the standard brackets. It's designed to specifically punish teams that spend into the tax year after year, not just a single big-spending season.
No. The cap and the tax are two different lines. Teams routinely spend above the salary cap using exceptions without owing any tax at all, they only start paying once total team salary crosses the higher luxury tax threshold.
It gets redistributed. A portion is split among teams that stayed under the tax line that season, and the league also uses some of it for league-wide revenue purposes, so paying the tax isn't just a penalty in a vacuum, it's effectively a transfer to the teams that didn't spend into it.
To keep a roster together that they believe is good enough to win at a high level. For a title contender, the cost of the tax bill is often treated as just another team-building expense, worth it to avoid breaking up a core that's working.