The rule in Washington
The rule is set out in Washington L&I: Holiday, Vacation & Bereavement Leave.
- If an employer agreed to provide vacation and did not, the worker may take private legal action.
Use-it-or-lose-it. We found no Washington 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 Washington 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.
Washington 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 Washington require employers to pay out unused PTO?
Not by law. Washington does not require employers to provide or pay out vacation. Any payout depends on your employer's policy or union contract, and the state labor department does not enforce those agreements.
Is use-it-or-lose-it vacation legal in Washington?
Usually, if the written policy says so. We found no Washington 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 Washington?
Federally, a payout on top of regular wages is a supplemental payment: many employers withhold 22% for income tax, plus Social Security and Medicare. Washington does not tax wage income, so no state income tax is withheld.