Illinois PTO payout law

Illinois requires earned vacation to be paid when a job ends. Here is the rule, its source, and what your balance is worth.

Illinois vacation payout rule

Payout required

In Illinois, earned vacation must be paid as part of your final compensation at your final rate of pay, and no policy can forfeit earned vacation when you leave. Use-it-or-lose-it rules are allowed only if you had notice of the rule and a reasonable chance to use the time.

Checked against the full official text · September 25, 2026

Payout when a job ends: Payout required
Use-it-or-lose-it: Allowed with advance notice
State income tax on a payout: Withheld under state rules
Source: 820 ILCS 115/5; 56 Ill. Adm. Code 300.520 (opens in a new tab)

What your unused PTO is worth

Your PTO payout

Illinois · Payout required

$2,000.00 before tax, for 80 hours

Your PTO payout, line by line
Unused PTO 80 h × $25.00	$2,000.00
Federal income tax Flat 22% supplemental rate	−$440.00
Social Security 6.2%	−$124.00
Medicare 1.45%	−$29.00

Estimated after federal withholding

$1,407.00

Hourly value: $25.00
Share withheld: 29.65%

Payout required

In Illinois, earned vacation must be paid as part of your final compensation at your final rate of pay, and no policy can forfeit earned vacation when you leave. Use-it-or-lose-it rules are allowed only if you had notice of the rule and a reasonable chance to use the time.

State and local income tax are not included. Your employer may withhold federal tax by the aggregate method instead of the flat rate; either way, the final tax is settled on your return.

The rule in Illinois

The rule comes from 820 ILCS 115/5; 56 Ill. Adm. Code 300.520.

Earned vacation is prorated when you leave.
Use-it-or-lose-it is allowed only if you had notice of the rule and a reasonable chance to use the time (56 Ill. Adm. Code 300.520).

Use-it-or-lose-it. Illinois lets unused vacation lapse only under a rule employees were told about beforehand, and only if they had a reasonable chance to use the time.

What to check in your policy

Because Illinois law requires the payout, a handbook clause that says unused vacation is lost when you leave generally does not override it; any exception is in the rule above. Check that your final paycheck includes every earned hour.

Tax on a Illinois payout

A payout is taxable wages. Take 80 unused hours at $25.00 an hour, worth $2,000.00. Paid on top of regular wages, it is a supplemental payment, so many employers withhold $440.00 of federal income tax at the flat 22% rate, plus $124.00 of Social Security and $29.00 of Medicare, leaving about $1,407.00.

Illinois income tax is withheld on top of that, under the state’s own rules, so you will receive somewhat less. Withholding is not the final tax; any difference is settled on your return.

Questions people ask

Does Illinois require employers to pay out unused PTO?

Yes. In Illinois, earned vacation must be paid as part of your final compensation at your final rate of pay, and no policy can forfeit earned vacation when you leave. Use-it-or-lose-it rules are allowed only if you had notice of the rule and a reasonable chance to use the time.

Is use-it-or-lose-it vacation legal in Illinois?

Only with advance notice. Illinois lets unused vacation lapse only under a rule employees were told about beforehand, and only if they had a reasonable chance to use the time.

How is a PTO payout taxed in Illinois?

Federally, a payout on top of regular wages is a supplemental payment: many employers withhold 22% for income tax, plus Social Security and Medicare. Illinois income tax is withheld as well, under the state’s own rules.

Sources

Each source was read on September 25, 2026.