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

In Texas, use-it-or-lose-it policies are generally allowed if clearly stated in writing.

How is my Texas PTO payout taxed?

At the federal supplemental rate (22%) plus Social Security and Medicare, with no Texas income tax on wages.

Texas PTO Payout Laws and Payout Calculator

Blasko Sarcevic

Published June 29, 2026

Find out whether Texas requires employers to pay out unused PTO at separation, and estimate what your payout is worth. (Policy-dependent.)

Topic

TODO: generate image

Texas PTO payout rule: Policy-dependent. Diagram of unused hours times hourly rate equals payout.

Pay type

Annual salary ($)

Hours per weekUsed to derive the hourly rate and day length.Unused PTO

State (optional)Sets payout rules and the state-tax estimate.Estimate taxes (net payout)

Gross payout$1,000.00

Federal (22%)- $220.00

Social Security (6.2%)- $62.00

Medicare (1.45%)- $14.50

Net payout$703.50

Hourly rate $25.00 · 40 unused hours.

Policy-dependent: No state income tax. Payout depends on employer policy. State income tax (if any) not modeled here.

See how PTO accrues →

Estimates only — not legal or tax advice. 2026 rates and state rules can change; confirm them before relying on them.

Does Texas require PTO payout at termination?

Texas has no statute requiring PTO payout. Whether you are paid depends on your employer's written policy or contract. If the policy promises payout, the employer must honor it. No state income tax. Payout depends on employer policy. [VERIFY: confirm current Texas statute and case law before publishing.]

How PTO payout is calculated in Texas

Multiply your unused PTO hours by your hourly rate. Salaried employees divide annual salary by 2,080 to get the hourly rate first.

Example: $52,000 / 2,080 = $25/hour; 40 unused hours = a $1,000 gross payout. Use the calculator above for your exact figures.

Is a PTO payout taxed in Texas?

A PTO payout is taxable supplemental income: 22% federal withholding, Social Security (6.2%), and Medicare (1.45%). Texas has no state income tax on wages.

General information only, not legal or tax advice. State rules change; confirm with your state labor agency or counsel.

Frequently asked questions

Does Texas require employers to pay out unused vacation?: Texas has no statute requiring PTO payout. Whether you are paid depends on your employer's written policy or contract. If the policy promises payout, the employer must honor it. No state income tax. Payout depends on employer policy.
Is "use-it-or-lose-it" legal in Texas?: In Texas, use-it-or-lose-it policies are generally allowed if clearly stated in writing.
How is my Texas PTO payout taxed?: At the federal supplemental rate (22%) plus Social Security and Medicare, with no Texas income tax on wages.

About the author

Blasko Sarcevic

Founder, Time-Out Zone

Connect on LinkedIn

Blasko writes about leave management, policy design, and running time-off operations at scale.

Managing payouts for a whole team?

Time-Out Zone tracks accrual, carryover, and balances automatically, so final payouts are correct without spreadsheets.

See a live demo View pricing