A vacation payout in California is taxed as regular wages, not at a single special rate. Expect your employer to withhold about 22% for federal income tax, 6.6% for California income tax, 7.65% for Social Security and Medicare, and 1.3% for State Disability Insurance. That comes to roughly 37.55% off the top. Only the FICA and SDI pieces are final; the income tax withholding is a prepayment you reconcile when you file your returns.
Federal Income Tax: Usually 22%
The IRS treats a vacation payout as “supplemental wages,” the same category as bonuses, commissions, and severance. Your employer can withhold federal income tax one of two ways.1Internal Revenue Service. Publication 15 (2026), (Circular E), Employer’s Tax Guide
The common choice is the flat rate method: a straight 22% on the payout, regardless of what you put on your W-4. Payroll likes it because it is simple, and it is the default when the payout is paid separately from your regular check or identified separately within a combined one.
The alternative is the aggregate method. Here the employer adds the payout to your regular wages for the pay period and withholds as if that combined amount were a normal paycheck, using your W-4. Because payroll software assumes you will earn that inflated amount every pay period, aggregate withholding usually ends up higher than 22%.
Neither method is your actual tax. If your total taxable income lands you in the 12% bracket, 22% was too much and the extra comes back as a refund. If you are in the 24% or 32% bracket, 22% was not enough and you will owe the difference. For reference, the 22% bracket in 2026 covers taxable income from $50,400 to $105,700 for single filers and $100,800 to $211,400 for married couples filing jointly.2Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
California Income Tax: 6.6% Flat
California’s Employment Development Department also treats vacation payouts as supplemental wages.3EDD – CA.gov. Information Sheet: Wages (DE 231A) The flat state withholding rate on vacation pay is 6.6% of the gross, ignoring whatever you claimed on your DE 4. A higher 10.23% flat rate exists for bonuses and stock options, but it does not apply to vacation payouts.4EDD – CA.gov. Information Sheet: Personal Income Tax Withholding – Supplemental Wage Payments
An employer can also use the aggregate method on the state side, combining the payout with your regular wages and running it through the DE 4 allowances and California’s withholding tables. Same drawback as federal: it tends to overshoot because the system treats the combined amount as recurring.
California’s actual income tax rates run from 1% to 13.3%, so whether 6.6% was too much or too little depends on your full year of California taxable income. A lot of moderate earners see some of it come back on their Form 540.
Social Security and Medicare: 7.65%
FICA is the fixed piece. Your share is 7.65% total: 6.2% for Social Security and 1.45% for Medicare.5Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates The Social Security portion only applies up to the annual wage base, which is $184,500 for 2026.6Social Security Administration. 2026 Cost-of-Living Adjustment (COLA) Fact Sheet If your year-to-date wages have already passed that cap, the 6.2% drops off the payout. Medicare has no cap and applies to every dollar.
Once your wages for the year cross $200,000, employers withhold an additional 0.9% Medicare tax on the amount above the threshold. When you file, the actual threshold depends on your filing status: $250,000 for married filing jointly, $200,000 for single, and $125,000 for married filing separately.7Internal Revenue Service. Questions and Answers for the Additional Medicare Tax Unlike income tax withholding, FICA is not reconciled at filing beyond that additional Medicare true-up.
California SDI: 1.3% of Everything
California’s State Disability Insurance contribution for 2026 is 1.3%, with no wage cap.8Employment Development Department. Contribution Rates, Withholding Schedules, and Meals and Lodging Values The ceiling that used to exempt higher earners went away on January 1, 2024, so 1.3% applies to the full payout no matter how much you make. Like FICA, this one is final.
What the Deductions Look Like on a Real Payout
Assume you are a California employee under both the Social Security wage base and the $200,000 additional Medicare threshold. The withholding stack looks like this:
- Federal income tax (flat): 22%
- California income tax (flat): 6.6%
- Social Security: 6.2%
- Medicare: 1.45%
- California SDI: 1.3%
Total: about 37.55%. On a $5,000 payout, that is roughly $1,877 withheld and about $3,123 landing in your account.
If your employer uses the aggregate method, the income tax lines can look larger on the pay stub. If your year-to-date wages have already topped $184,500, drop the 6.2%. If the payout pushes you past $200,000 for the year, add 0.9% on the amount over the line.
What Gets Refunded, What Does Not
The 22% federal and 6.6% state are prepayments. Your real tax depends on your full-year taxable income, filing status, deductions, and credits, and gets settled when you file Form 1040 and California Form 540. Over-withholding comes back as a refund; under-withholding comes due. FICA and SDI are not adjusted at filing, aside from the additional Medicare tax reconciliation.
When the Payout Has to Reach You
The vacation balance is part of your final paycheck, and California’s final pay deadlines are strict. If you were fired or laid off, all wages including accrued vacation are due immediately. If you quit with at least 72 hours’ notice, they are due on your last day. If you quit without notice, the employer has 72 hours to pay you. These rules sit in Labor Code Sections 201 and 202.9California Department of Industrial Relations. Final Pay
Miss those deadlines and Labor Code Section 203 keeps your daily wage running as a penalty for every day the payment is late, up to 30 calendar days.10California Legislative Information. California Labor Code 203 For a worker earning $300 a day, that is up to $9,000 on top of the wages owed. If your final check shows up late or without the vacation balance, those penalties are worth knowing about.