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Due to a mistake in the way the University reported its employees’ taxable income, approximately 11,000 Harvard employees paid excess income taxes between 2009 and 2013, with the hardest hit contributing several thousands dollars more than they should have.
The misclassification of earnings occurred after Harvard changed the structure of its supplemental life insurance plan, such that the benefit should no longer have been taxable, according to a letter the Vice President for Human Resources Marilyn Hausammann sent to all affected employees on Feb. 7. Despite the change, the University did not alter the way it reported taxable income, which resulted in employees paying taxes on income that they did not receive.
Hausammann’s letter stated that the total excess reported income exceeded $20 million, although individual employees were affected to different extents. In 2013, 13 percent of the 11,000 affected employees paid taxes on more than $1000 of excess income, with a “small number” paying taxes on more than $10,000 of excess income. Sixty percent of the 11,000 affected employees were taxed on $200 or less of excess income.
In the Feb. 7 letter, Hausammann said that the University will help affected employees file amended returns for 2011 and 2012 and fully compensate all employees who paid too much in taxes in 2009 and 2010, which are outside the statute of limitation for appeals.
“Harvard will take a series of steps to ensure that those affected do not incur any financial losses related to this situation, including payments for excess taxes paid in years where individuals can no longer file corrected returns, reimbursement for out-of-pocket tax preparation costs, and educational programming on filing an amended return,” University spokesperson Kevin Galvin wrote in an email.
The affected employees were first informed of the mistake by a letter from the Harvard Benefits Office on Jan. 21. According to Alvin C. Warren and Daniel I. Halperin, two Harvard Law School professors who specialize in tax law and policy, the letter did not accurately convey the situation. The pair responded with their own letter to Law School faculty and staff, as well as Hausammann and Executive Vice President Katherine N. Lapp, pointing out the mistakes.
“Nowhere is the total scope of the problem frankly presented,” Warren and Halperin’s letter read. They noted that the University’s letter only discussed 2011-2013, even though the same tax mistake occurred in 2009 and 2010, as well.
The letter also expressed concern that the initial Benefits Office announcement reported that "IRS regulations do not allow the University to assist you in filing for a state or federal income tax refund,” which Warren and Halperin said do not exist. They called for the University to take more steps to ensure that all affected employees were compensated appropriately.
Three days later, on Feb. 7, Hausammann wrote a letter to all affected employees that began with an apology and responded to many of Warren and Halperin’s concerns.
“I offer my sincere apologies for the error itself and for the failure of the initial letter to communicate effectively, including about the nature and scope of the problem, and Harvard’s proposed response,” Hausammann wrote. The letter went on to clarify the details of the situation and what the University would do to assist those who were affected.
While Halperin said in an interview with The Crimson on Sunday that the steps Harvard aims to take to compensate employees are “reasonable,” he raised concerns about the four-year time span in which no official caught the mistake after the life insurance policy was changed.
“I don’t know what happened,” Halperin said. “Somebody in both Human Resources and in payroll should have been aware about what was going on, but apparently they didn’t connect.”
According to the Harvard University Fact Book, the University employed more than 16,000 people in the 2011-2012 academic year, the last for which there are publicly available records. During the 2013 fiscal year, the University paid more than $1.5 billion in compensation.
Director of the Harvard Union of Clerical and Technical Workers Bill Jaeger said that, as a Harvard employee who was directly affected by the mistake and as the leader of the University’s largest union, the mistake is a troubling oversight.
“Our union doesn’t spend a lot of time or resources double checking because we want to be able to assume that, in terms of tax reporting and compliance in general with the federal legal framework, the benefits programs are being competently managed,” Jaeger said. “So it’s a little unsettling to have this big question just pop up and cast doubt on the quality of the management of our programs.
—Staff writer Christine Y. Cahill can be reached at firstname.lastname@example.org. Follow her on Twitter @cycahill16.
—Staff writer Amna H. Hashmi can be reached at email@example.com. Follow her on Twitter @amna_hashmi.
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