Vacation cash-out
How PTO payout works in 2026
When you leave a job — or when your employer allows a mid-year cash-out — your accrued, unused PTO is converted to a lump-sum payment. The gross amount is simply your hourly rate (or salary equivalent) multiplied by the unused hours. What lands in your bank account is significantly less, because the IRS treats PTO payouts as supplemental wages.
PTO payout tax rules
Your employer withholds federal income tax at the flat 22% supplemental rate on a PTO payout (37% on the amount above $1 million). On top of that, FICA applies: 6.2% Social Security on wages up to the $184,500 cap (2026, SSA) and 1.45% Medicare with no cap. State income tax, if any, is deducted last. The combined tax bite on a PTO payout typically runs 30% to 40%.
| Unused PTO hours | Rate | Gross | Net (est., 5% state) |
|---|---|---|---|
| 40 hrs (1 week) | $25 | $1,000 | ~$644 |
| 80 hrs (2 weeks) | $30 | $2,400 | ~$1,545 |
| 120 hrs (3 weeks) | $35 | $4,200 | ~$2,705 |
| 160 hrs (4 weeks) | $40 | $6,400 | ~$4,122 |
Net estimates assume 22% federal + 7.65% FICA + 5% state. No-income-tax states keep roughly 5 percentage points more.
Salaried employees
If you are salaried, convert your annual salary to an hourly rate by dividing by 2,080 (40 hours x 52 weeks). A $78,000 salary becomes $37.50/hour. Multiply that by your unused PTO hours to get the gross payout. Some employers use a 2,087-hour divisor for salaried employees based on a 365.25-day year, which produces a slightly lower hourly rate.
Timing and your tax return
A PTO payout in your final paycheck may land in a pay period where your total compensation is unusually high, triggering higher withholding. At filing time, your actual tax liability is based on your full-year income and marginal bracket — if too much was withheld, you get a refund. To estimate your full-year take-home, pair this tool with our salary after taxes calculator or take-home pay calculator.
Questions
PTO payout calculator FAQ
How is a PTO payout calculated?
Multiply your unused PTO hours by your regular hourly rate. If you are salaried, divide your annual salary by 2,080 to get the hourly equivalent. A salaried employee earning $75,000 with 80 unused PTO hours has a gross payout of ($75,000 divided by 2,080) times 80, which equals $2,884.62.
Is PTO payout taxed as supplemental wages?
Yes. The IRS treats a PTO payout as supplemental wages, so federal income tax is withheld at the flat 22% rate (37% on amounts above $1 million). FICA also applies: 6.2% Social Security up to the $184,500 wage base and 1.45% Medicare. State income tax is deducted on top, where applicable.
Do all states require PTO payout at termination?
No. Only about half of US states require employers to pay out accrued, unused vacation when an employee leaves. California, Colorado, Illinois, Montana and Massachusetts are among the states that mandate payout. In states without a payout law, the employer's written policy controls whether unused PTO is forfeited or paid.
Can I get a refund if too much tax is withheld from my PTO payout?
Yes. The 22% flat withholding rate is just a withholding method, not your actual tax rate. If the withholding exceeds your real tax liability for the year, you will receive the excess as a refund when you file your tax return.
Does PTO payout count toward overtime?
Generally no. Under the FLSA, only hours actually worked count toward the 40-hour overtime threshold. PTO hours paid but not worked do not trigger overtime, although some employer policies or union contracts may treat them differently.
- Sources: IRS Rev. Proc. 2025-32 (22% supplemental withholding) · SSA 2026 OASDI wage base $184,500 · State labor department PTO payout statutes.
- 🔄 Last updated July 25, 2026 · Tax year 2026
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