Purpose:

The purpose of this bulletin is to inform CUNY agencies of the new process to report FLSA compensatory time an employee earned in lieu of overtime compensation which is then charged in a later pay period.

Affected Employees:

Employees as outlined in Payroll Bulletin No. 2409 who worked over forty hours in a work week and earned FLSA compensatory time in lieu of overtime compensation which is then charged in a later pay period are affected.

Background:

The Omnibus Budget Reconciliation Bill for Budget Accountability, or One, Big, Beautiful Bill Act (OBBBA), became Public Law 119-21 on July 4, 2025.  The OBBBA amends the Internal Revenue Code allowing an income tax deduction of qualified overtime compensation received during taxable years 2025 – 2028. 

• New Tax Deduction: Individuals who receive qualified overtime compensation may deduct the pay that exceeds their regular rate of pay – such as the “half” portion of “time-and-a-half” compensation -- that is required by the FLSA and that is reported on an IRS Form W-2, Form 1099, or other specified statement furnished to the individual.  For further information please see the IRS News Release “Treasury, IRS provide guidance for individuals who received tips or overtime during tax year 2025 | Internal Revenue Service” IR-2025-114, dated November 21, 2025.
• Employer Reporting: Employers and other payors are required to furnish information statements, such as IRS Form W-2, to employees.
• Charging Accruals During the Week in which Overtime is Worked: An FLSA eligible employee who works qualified overtime and charges accruals within the same week will not be entitled to an income tax deduction for any hours charged during such week.
• Charging Accruals Earned in Lieu of Overtime Compensation: Pursuant to the Collective Bargaining Agreements authorized by Carmelo Batista, Jr in the 05/30/2024 Memorandum of Agreement between the City University of New York and DC37 (2021-2027), SEIU Local 300 (2021-2026), IATSE Local 306 (2021-2026), and the New York State Nurses Association (2022-2027), FLSA eligible employees represented by these negotiating units may opt to receive FLSA compensatory time in lieu of overtime compensation for time worked over forty hours in a work week. Time charged in a future pay period using these accruals is considered eligible for the new income tax deduction equivalent to half an employee’s regular hourly rate of pay.

Effective Dates:

The new process for tracking and reporting accrual usage is effective for accruals charged in checks dated January 1, 2026 through December 31, 2028.

Eligibility Criteria:

CUNY employees as outlined in Payroll Bulletin No. 2409 who previously earned FLSA compensatory time in lieu of overtime compensation for time worked above 40 hours in a single work week are eligible if these accruals are charged in any check as described in the Effective Dates section and must have these charged hours reported in PayServ (see below). 

• These charged hours must only be reported in PayServ for FLSA compensatory time earned above 40 hours in a work week. 
• Accruals must be reported when they are charged, not when they are earned. 

Example of an employee who earns accruals for time worked between 37.5 and 40 hours: In a Calendar Year 2025 paycheck, an eligible employee who works 7.5 hours per day (37.5 hours per week) worked 40 hours. They received 2.5 hours of accruals. In a Calendar Year 2026 paycheck, these accruals are charged in a regular work week. Since these accruals were earned for hours worked below 40 in a single work week, they do not qualify for the income tax deduction and therefore the agency does not need to submit a transaction in PayServ.

Example of an employee who earns accruals for time worked above 40 hours: In a Calendar Year 2025 paycheck, an eligible employee who works 8 hours per day (40 hours per week) worked 45 hours. They elected to receive FLSA compensatory time in lieu of overtime compensation. In a Calendar Year 2026 paycheck, these accruals are charged during the employee’s regular work week. Since these accruals were earned for hours worked above 40 in a single work week, they qualify for the income tax deduction and therefore must be submitted by the agency in PayServ using the applicable Earnings Codes below.

OSC Actions:

OSC has created the following Time Entry Earnings Codes to report the hours an employee charges accruals earned in lieu of overtime:

OSC will use the hours reported via Earnings Code CN1 and CN2 when calculating the income tax deduction. These Earnings Codes will not add to gross earnings and will not display on an employee’s paycheck stub or direct deposit advice.

Agency Actions:

To report the number of eligible accruals an employee charges during the work week, the following information must be submitted on the Time Entry page or the Time Entry Interface (NPAY502):

Note: To ensure accruals are reported accurately, agencies must submit the applicable Earnings Code for each individual date the employee charges eligible accruals. A range of dates in a single entry must not be used.

In addition, agencies must ensure all necessary CN1 and CN2 entries are submitted prior to the final check date of each applicable tax year.

Questions:

Agency questions regarding the calculation of premium overtime earnings may be emailed to the Tax and Compliance mailbox.

Agency questions regarding the submission of Earnings Codes CN1 and CN2 may be emailed to the Payroll Earnings mailbox.