The amount of tax withheld from vacation payout depends on several factors and varies significantly. Vacation payout is treated as regular wages, so federal income tax, Social Security tax (6.2%), and Medicare tax (1.45%) are typically withheld. The federal income tax rate depends on your W-4 form settings and your total taxable income for the year.
If your employer pays out unused vacation in a lump sum, it may result in a larger single paycheck, which could push you into a higher tax bracket temporarily, increasing the percentage withheld. Some employers use "supplemental wage" withholding rules, which apply a flat 22% federal tax rate (or 37% for amounts over $1 million) regardless of your other income.
State and local income taxes, where applicable, add additional withholding on top of federal taxes. The exact amount is determined by your state's tax laws and local municipality rules.
The key is that vacation payout is not treated specially for tax purposes—it's considered earned income subject to normal payroll taxation. Your actual tax liability (what you owe) is determined at tax time based on your total annual income, deductions, and credits. The withholding you see on a vacation payout is just an estimate; you may receive a refund or owe additional taxes when you file your return. To estimate your specific withholding, use the IRS withholding calculator or consult your employer's payroll department about your current W-4 settings.