Maryland PTO payout law

In Maryland, earned vacation is generally paid when a job ends unless a written policy says otherwise. Here is the rule, its source, and what your balance is worth.

Maryland vacation payout rule

Required unless a written policy says otherwise

In Maryland, accrued leave must be paid when employment ends unless your employer has a written policy limiting payout, told you about its leave benefits when you were hired, and the policy says you are not entitled to payout.

Checked against the full official text · September 25, 2026

Payout when a job ends: Required unless a written policy says otherwise
Use-it-or-lose-it: No state rule found
State income tax on a payout: Withheld under state rules
Source: Md. Code Ann., Lab. & Empl. § 3-505(b) (opens in a new tab)

What your unused PTO is worth

Your PTO payout

Maryland · Required unless a written policy says otherwise

$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%

Required unless a written policy says otherwise

In Maryland, accrued leave must be paid when employment ends unless your employer has a written policy limiting payout, told you about its leave benefits when you were hired, and the policy says you are not entitled to payout.

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 Maryland

The rule comes from Md. Code Ann., Lab. & Empl. § 3-505(b).

An employer can withhold accrued leave only if all three conditions are met: a written policy limits payout, you were told about leave benefits when hired, and the policy says you are not entitled to payout.

Use-it-or-lose-it. We found no Maryland statute or agency rule on use-it-or-lose-it policies, so the employer’s written policy usually decides.

What to check in your policy

Look for a written clause on unused vacation at separation. If there is none, the time is generally owed. If there is one, it usually decides, so read what it says about quitting, being let go and notice periods.

Tax on a Maryland 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.

Maryland 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 Maryland require employers to pay out unused PTO?

Usually. In Maryland, accrued leave must be paid when employment ends unless your employer has a written policy limiting payout, told you about its leave benefits when you were hired, and the policy says you are not entitled to payout.

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

Usually, if the written policy says so. We found no Maryland statute or agency rule on use-it-or-lose-it policies, so the employer’s written policy usually decides.

How is a PTO payout taxed in Maryland?

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

Sources

Each source was read on September 25, 2026.