Payroll for NA / Time and Labor - PSFT (MOSC)

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How to Report One-Third Qualified Overtime (140T) on W-2 in PeopleSoft? OBBBA Related Question

in Payroll for NA / Time and Labor - PSFT (MOSC) 2 commentsAnswered

Per IRS Notice 2025-69, Section III, Part B, Subsection 2 (issued under the One, Big, Beautiful Bill Act – OBBBA), employees may deduct qualified overtime compensation for the 2025 tax year.

One-Third Rule (When Overtime Is Not Separately Identified)

If an employer’s statement shows only an aggregate overtime amount (regular pay + overtime premium combined), the IRS allows a reasonable method to determine qualified overtime:

One-third of the aggregate overtime amount may be treated as qualified overtime compensation.

IRS Examples (Simplified)

  • Example 1:
    Pay stub shows total overtime = $15,000
    Qualified overtime = $5,000 (one-third)
  • Example 2 (Law Enforcement):
    Total annual overtime paid = $15,000
    Qualified overtime = $5,000
  • Example 3 (Comp Time – Public Sector):
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