Texas PTO payout law

Texas law does not require unused vacation to be paid out, so your employer’s policy decides. Here is the rule, its source, and what your balance would be worth.

Texas vacation payout rule

Depends on employer policy

Texas requires payout of unused vacation only if a written agreement or written policy of the employer promises it. If the policy is silent, payout cannot be enforced under the Texas Payday Law.

Checked against excerpts of the official source · September 25, 2026

Payout when a job ends: Depends on employer policy
Use-it-or-lose-it: Allowed
State income tax on a payout: None
Source: Tex. Lab. Code § 61.001(7)(B) (opens in a new tab)

What your unused PTO is worth

Your PTO payout

Texas · Depends on employer policy

$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%

Depends on employer policy

Texas requires payout of unused vacation only if a written agreement or written policy of the employer promises it. If the policy is silent, payout cannot be enforced under the Texas Payday Law.

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 Texas

The rule comes from Tex. Lab. Code § 61.001(7)(B).

A written policy or agreement is enforced according to what it says, including any use-it-or-lose-it rule or carryover limit.

Use-it-or-lose-it. In Texas, a written policy can make unused vacation lapse; the policy’s terms decide.

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 Texas 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.

Texas does not tax wage income, so that is close to what you receive. Withholding is not the final tax; any difference is settled on your return.

Questions people ask

Does Texas require employers to pay out unused PTO?

Not by law. Texas requires payout of unused vacation only if a written agreement or written policy of the employer promises it. If the policy is silent, payout cannot be enforced under the Texas Payday Law.

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

Yes. In Texas, a written policy can make unused vacation lapse; the policy’s terms decide.

How is a PTO payout taxed in Texas?

Federally, a payout on top of regular wages is a supplemental payment: many employers withhold 22% for income tax, plus Social Security and Medicare. Texas does not tax wage income, so no state income tax is withheld.

Sources

Each source was read on September 25, 2026.