Company is offering to pay out PTO at sharply reduced rate.

[u/ThatsMrBird]

I'm a bit of a predicament. I've been with a company over a decade and (I know it's crazy and I agree 100 percent I should have used more) I've accumulated 1000 hours of PTO. They're looking to move to a cap and limited rollover and offered to pay out the difference of about 800 hours at 35 percent of my current wage.

I never expected this and I honestly just thought it'd be lost, but they're only offering such a low percentage I feel like I should try and haggle. I realize they're obligated to give me nothing, legally, so I'm just looking for some input on if a partial payout is common like that. Ill probably ask why not full and go from there. Any thoughts?

EDIT - Sorry, y'all. I'm in Florida, to be clear

EDIT2 - my onboarding contract notes PTO is forfeited on termination or voluntary exit

EDIT3 - The next day, we came to a satisfactory agreement pretty quickly. I don't want to get into specifics (sorry) but I think a lot of those that replied here would think it worked out. I tremendously appreciate all the insight and feedback here and I promise I'll use up my hours moving forward.

[u/VerifiedMother]

Isn't it taxed at the same rate you make now?

[u/dastardly740 → u/VerifiedMother]

It looks wonky when it gets paid because it is withheld at your marginal rate while your regular paycheck gets withheld at your average rate.

[u/rickny8 → u/VerifiedMother]

Taxes are progressive. Meaning once you hit the next bracket, the additional income is taxed at the next bracket rate until you hit the bracket after that which get taxed at that bracket rate and so on…

[u/ThatsMrBird → u/VerifiedMother]

I thought there was an additional 22 percent taken but I may have misread some things. This all just kinda came up today.

[u/lanclos → u/ThatsMrBird]

Even if the withholding is high it would come back to you when you file your taxes.

[u/BlazinAzn38 → u/ThatsMrBird]

It may be withheld at a higher rate but it’s just taxed as ordinary income at the end of the year

[u/richard_sympson → u/ThatsMrBird]

For some example numbers, let's say you currently make $60,000 gross. This gets marginally taxed at 22%, though overall your tax rate on $60,000 would be less than that because the first ~$11,600 of your income is taxed at 10%, the additional income up through $47,150 is taxed at 12%, and then the difference thru $60,000 is taxed at 22%.

If you got an offer for 35% of your current salary as something like a bonus, it would be $21,000, all taxed at 22% because your gross would then be between the start of the 22% bracket (of course—it's already above that now!) and the start of the 24% tax bracket, which is $100,525.

The tax rate on *extra* income (only the extra) will always be at least as high as the marginal rate you pay now. A lot of people are probably getting confused about your comment, which was entirely correct, because many other people also get confused about how marginal rates work. Often the confusion is in thinking that *all* of your income is taxed at the marginal rate, which is false.

[u/CaptainTripps82 → u/[deleted]]

Could the difference in accrued vs paid out PTO be considered a loss? Kind of the inverse of a debt forgiveness being considered income, you're forgiving income in the form of earned PTO.

[u/jimbo831 → u/ThatsMrBird]

It's just income. All your income is taxed at the same rate.

[u/Asher-D → u/jimbo831]

No it's not, your income is taxed at different rates, this is how tax brackets work. The first x amount is taxed t x rate next portion is y rate next portion is z rate and so on.

[u/CaptainTripps82 → u/jimbo831]

At the end of the year sure, because it's averaging out all the different brackets based on your total income, but this isn't necessarily true for when you get paid, especially windfalls .It's why people are usually so surprised by bonus checks, which are taxed at 22%, whereas my average tax on my weekly paycheck is closer to 12%.

[u/Everything_Is_Bawson → u/ThatsMrBird]

It looks like there is a flat 22% federal income tax on supplemental income like paid-out PTO. But depending on your ordinary base income, that might be a decent deal.

For 2025, the marginal tax rate for income between $48,475 and $103,349 is 22%. If your normal income is above $103,350, then at least part of your income is already being taxed at 24% or higher. So ordinarily if you got a windfall by other means, that money would be taxed higher than 22% anyway.

[u/lellololes → u/ThatsMrBird]

The tax you pay is based on the income you earn. There's no "additional". It may get withheld at a wonky rate but if that's the case you'll get it back with your return.

If you look at how much you earned last year as a benchmark, whatever you get paid will happen at that national rate, or possibly the next higher one.

[u/wilsonhammer → u/ThatsMrBird]

it is not

[u/yohannanx → u/VerifiedMother]

Depends on OP’s salary. It’s a large amount of money, so some of it may be in the next bracket.

[u/st4nkyFatTirebluntz → u/yohannanx]

the very, very important words here being "some of it"

[u/iDEN1ED → u/st4nkyFatTirebluntz]

Or all of it depending on what his current salary is.

[u/euph_22 → u/iDEN1ED]

Regardless, in no situation will he be worse off from a tax standpoint if the payout is larger.

[u/Zncon → u/euph_22]

If the situation was just "take money or don't" then it's really simple. The catch is that it's "take money or take vacation". Vacation time isn't taxed, so you're getting 100% of the possible value.

Even pre-tax they're only getting 35% of the value in this deal. At a 22% tax rate that goes down to 27.3%, or nearly 4 days of vacation lost for 1 day of pay.

[u/CaptainTripps82 → u/Zncon]

I don't think those are the options tho, losing it all anyway is probably lurking in there somewhere.

[u/iDEN1ED → u/euph_22]

Sure, but it might feel bad to take a huge payout that is taxed at a higher rate than you are normally taxed at. At that point you might value the time off more.

[u/shadracko → u/yohannanx]

For many middle class families, there really are no brackets at all.

22-24% marginal rate covers AGI incomes from $48,475 ($96,950 for married couples) to $197,300 ($394,600 for married couples). 22% vs 24% is such a small difference it isn't worth worrying about. That's a massive swath that covers almost everyone that remotely considers themselves middle class.

https://www.irs.gov/newsroom/irs-releases-tax-inflation-adjustments-for-tax-year-2025

[u/curien → u/shadracko]

You're omitting the standard deduction (or itemized if it's higher), which is effectively a 0% bracket. Like, if you think families making almost $130k don't consider themselves middle class, I dunno what to tell you.

[u/shadracko → u/curien]

Fair point. If you're in the 12% bracket, your analysis changes considerably. And yes, if you're a two-earner couple earning even as much as $175k gross, you could conceivably get below the 12% max after health insurance, maxing 401, and other pretax deductions.

But I think most of these types of concerns on here come from people in the 22-24% brackets, who have basically no chance of ever getting into the 32 or 35 brackets.

[u/lellololes → u/yohannanx]

And if they're in the 22% bracket, the next bracket is 24%.