NEW YORK — The Los Angeles Dodgers have set a new record for Major League Baseball’s luxury tax, incurring a staggering penalty of $103 million after surpassing nine other teams this season. This hefty amount has been compounded by the New York Mets, who are subject to a $97.1 million tax under their high-spending owner Steve Cohen, bringing their total tax bill to nearly $229 million.
Having secured a World Series title, the Dodgers will see their luxury tax applied for the fourth consecutive year, with a tax payroll standing at $353 million. This figure includes $1,032,454 attributed to non-cash compensation for Shohei Ohtani, who is entitled to a suite during games at Dodger Stadium as per his contract along with an interpreter.
Following the Dodgers are the New York Yankees, who owe $62.5 million, as confirmed by finalized figures from MLB and the players’ association. Other teams in the penalty bracket include Philadelphia at $14.4 million, Atlanta at $14 million, Texas at $10.8 million, Houston at $6.5 million, San Francisco at $2.4 million, and the Chicago Cubs, who owe $570,000.
This year’s total tax of $311.3 million marks a significant increase from the prior high of $209.8 million, which was collected last year from eight teams. Payments are due to MLB by January 21. Since the luxury tax was introduced in 2003, MLB has collected over $1 billion from 15 teams, totaling $1.23 billion in taxes. The Yankees lead all teams with a total of $452 million contributed, followed closely by the Dodgers at $350 million and the Mets.
In a move that raises eyebrows, the Toronto Blue Jays managed to reduce their tax payroll from an initial projection of $244.3 million to $233.9 million thanks to a series of trades during the summer, remaining below the $237 million luxury tax threshold. On the other hand, the Chicago franchise narrowly exceeded the threshold, recording a tax payroll of $239.85 million.
The Mets have made a notable attempt to cut their luxury tax obligations from a record $374.7 million last season to $347.7 million this year, lowering their tax hit from a previously staggering $100.8 million. The Dodgers, Mets, and Yankees are the only teams surpassing the newly implemented fourth threshold, designated as the Cohen Tax to temper the spending spree initiated by Cohen’s ownership.
Among the teams subject to the tax, the Giants, Rangers, and Cubs all failed to qualify for the playoffs. In terms of overall expenditure, luxury tax payrolls have risen by 2.3% this year, totaling $5.924 billion as opposed to $5.793 billion the previous year.
Luxury tax calculations incorporate average annual values, bonuses awarded to players on 40-man rosters, more than $17 million per team for benefits, and each club’s share of a $50 million pool for pre-arbitration players that debuted in 2022. Deferred salaries and bonuses are adjusted to their present-day values in these calculations.
Teams like the Mets, Dodgers, Yankees, and Phillies, which have faced taxes for three consecutive years, will incur rates of 50% on the first $20 million over the $237 million threshold, increasing to 62% for the next $20 million, and up to 110% for amounts surpassing $301 million.
The Braves and Rangers, now in their second year of tax obligations, face a rate of 30% on the initial $20 million over, with 42% on the subsequent $20 million. Similarly, the Houston Astros are paying the tax for the first time despite having crossed the threshold in 2020 when penalties were paused due to the pandemic. The Giants and Cubs have also entered the tax realm after extended gaps.
The existing labor agreement mandates that the first $3.5 million collected in tax be allocated towards player benefits, with 50% of the remaining funds designated for player Individual Retirement Accounts. The other half is directed to a discretionary fund for eligible teams that have increased their local revenue without media earnings since 2022 or 2023.
Heading into the next season, the initial threshold is set to rise to $241 million. Should the Mets, Yankees, Dodgers, Phillies, Braves, or Rangers exceed this threshold, the tax rates could escalate to as high as 110% for amounts exceeding $301 million.
