Montana PTO payout law

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

Montana vacation payout rule

Payout required

In Montana, vacation earned under your employer's policy counts as wages and must be paid when you leave. Use-it-or-lose-it policies are not permitted, though accrual caps are. Combined paid time off (PTO) plans are different: whether PTO is paid out depends on the employer's policy.

Checked against the full official text · September 25, 2026

Payout when a job ends: Payout required
Use-it-or-lose-it: Not allowed
State income tax on a payout: Withheld under state rules
Source: 23 Op. Att'y Gen. No. 56 (Mont.); McConkey v. Flathead Elec. Coop., 2005 MT 334, 330 Mont. 48, 125 P.3d 1121 (opens in a new tab)

What your unused PTO is worth

Your PTO payout

Montana · 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 Montana, vacation earned under your employer's policy counts as wages and must be paid when you leave. Use-it-or-lose-it policies are not permitted, though accrual caps are. Combined paid time off (PTO) plans are different: whether PTO is paid out depends on the employer's policy.

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 Montana

The rule comes from 23 Op. Att'y Gen. No. 56 (Mont.); McConkey v. Flathead Elec. Coop., 2005 MT 334, 330 Mont. 48, 125 P.3d 1121.

Private employers do not have to pay out sick leave.
Final pay is due immediately on a layoff or discharge, with limited extensions under a written policy.

Use-it-or-lose-it. Montana treats earned vacation as wages, so a policy that takes it away is not allowed. A cap that stops further accrual is a different thing and is allowed.

What to check in your policy

Because Montana 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 Montana 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.

Montana 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 Montana require employers to pay out unused PTO?

Yes. In Montana, vacation earned under your employer's policy counts as wages and must be paid when you leave. Use-it-or-lose-it policies are not permitted, though accrual caps are. Combined paid time off (PTO) plans are different: whether PTO is paid out depends on the employer's policy.

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

No. Montana treats earned vacation as wages, so a policy that takes it away is not allowed. A cap that stops further accrual is a different thing and is allowed.

How is a PTO payout taxed in Montana?

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

Sources

Each source was read on September 25, 2026.