NBA teams begin to get penalized or taxed based on how far over the salary cap a team’s payroll goes. This upper spending limit is also determined during the offseason using a particular percentage of BRI. From there, teams begin to incur penalties for each dollar they spend over the previously established tax threshold. Furthermore, these penalties increase based on a ‘tiered’ system that breaks penalties down into ranges. However, a team’s final luxury tax payment does not become official until the end of the regular season. So if a team begins the season over the tax line, they can still make moves during that season to bring their total payroll below the line, so that they can reduce or completely eliminate any luxury tax payments.
e.g. The luxury tax threshold for the 2021-2022 campaign was set to $123 million. The Los Angeles Clippers ended their season over the tax by $42,038,514. That places them into the fourth ‘tax bracket’, which covers $20,000,000+. They were taxed at a rate of $3.75 on the dollar, then an additional $0.50 for each $5 million after, which amounted to an additional $2.00 per dollar spent, for a total of $5.75 per dollar spent over the tax line.