Calculate however you want right now. IMHO, the correct methodology is 2020 wages x 2020 raise. 2021 wages x compound raise for 2020 & 2021, 2022 wages x compound raise for 2020, 2021 and 2022.

This would be the math for 7% annual raises over 3 years.
7% x 2020
14.5% x 2021
22.5% x 2022

Assuming flat wages of 200,000 per year it comes out to $88,000 retro or 44% of an average year.

Two key factors are compounding the raises and applying it to all years of back wages that are owed to the pilots.

ah, I forgot the compounding. Thank you very much!

Don't forget - about 50% to taxes

You guys over thinking this are setting yourself up for disappointment. There won’t be any compounding, adding to X plus Z.

It will be X% of 2019 wages + X% of 2020 wages + x% of 2021 wages. I would think also the appropriate amount of DC with it.

That’s why it’s best to pay it out as a “signing bonus” and not “retro”. The former only incurs a 25% tax hit and is apparently much easier for the company accounting-wise as well.

This is a common misconception. Any "supplemental income", of which bonuses and profit sharing qualify as, are WITHHELD at a 25% federal tax rate, along with the other standard social security, medicare, state tax, etc. However, all income, regardless of type, is lumped together when you actually file your taxes for that year. So, hypothetically if your marginal tax rate for the year was only 20%, you'd get that additional 5% that was withheld back as a refund.

Aha. So it’s initially taxed at 25% & then adjusted at the end of the year when filing?

Without compounding retro pay, there would be even less incentive for the company to reach a timely deal in the future. It needs to happen.

Yes. Similar to profit sharing. It’s just treated as ordinary income by the IRS. When you calculate your taxes at year end all ordinary income goes on the form and is treated equally.

In the past how has retro or signing bonuses been paid to guys on STD or LTD? Say they are active now but is on LTD when the new contract is signed.

Great explanation of EARNED income taxation. I'm amazed how many pilots confuse withholding and taxation.

As an add on, there are exceptions for long term capital gains and qualified dividends. Those are taxed at 0-20% max. Passive income (rents, royalties, etc) also benefit from lower taxation because there is no social security tax.

Hint: Wealthy people derive income from low tax sources. It's how they keep more of what they make.