The rule in Pennsylvania
The rule comes from Wage Payment and Collection Law, Act of July 14, 1961, P.L. 637, No. 329.
- Final wages are due by the next regular payday.
Use-it-or-lose-it. We found no Pennsylvania 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
Your handbook or offer letter decides. If it promises payout, that promise can usually be enforced. If it says unused time is forfeited, or says nothing, you may not be owed it. Keep a copy of the policy that was in force when you earned the time.
Tax on a Pennsylvania 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.
Pennsylvania 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 Pennsylvania require employers to pay out unused PTO?
Not by law. Pennsylvania does not require payout of unused vacation. Under the Wage Payment and Collection Law, vacation pay is owed only if your employer's policy or contract provides for it.
Is use-it-or-lose-it vacation legal in Pennsylvania?
Usually, if the written policy says so. We found no Pennsylvania 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 Pennsylvania?
Federally, a payout on top of regular wages is a supplemental payment: many employers withhold 22% for income tax, plus Social Security and Medicare. Pennsylvania income tax is withheld as well, under the state’s own rules.