(Bloomberg) Harvard University pledged to ensure restitution for as many as 11,000 employees after two of its faculty pointed out the impact of a tax error by the school.
Harvard erroneously reported that about $20 million worth of payments for life insurance were taxable, resulting in possibly millions of dollars in overpayments for employees beginning in 2009, law professors Alvin Warren and Daniel Halperin, both of whom specialize in tax law, said Feb. 4 in a memo to staff and faculty obtained by Bloomberg.
The university, based in Cambridge, Massachusetts, said Jan. 21 that employees who bought the life insurance plan would have to apply for refunds from the Internal Revenue Service on the overpayments. After Halperin and Warren pointed out that the overpayments were the university’s responsibility and that some were made too long ago to dispute with the IRS, the college said it would either compensate the overbilled employees or assist them in getting refunds.
“We regret this mistake, offer our sincere apologies to those affected and are working to remedy the situation as comprehensively and swiftly as possible,” the university said in an e-mailed statement.
Before 2009, some Harvard employees paid rates for supplemental life insurance that the IRS considered to involve taxable subsidies, the law professors’ e-mail said. When the university changed the insurance rate schedule in 2009, taxes on them should have ceased, the e-mail said.
After Harvard discovered the error, university officials originally failed to disclose its entire scope to faculty and staff, the professors said. A Jan. 21 letter from the university to affected employees said that the problem involved “several years prior to 2014” and failed to mention that it stretched back to 2009, for which the deadline for filing an amended tax return had lapsed, they said.
The Jan. 21 letter from Harvard also said that for most employees, the over-reported income was less than $200 per year. The law professors pointed out that for some the yearly errors in reported income were more than $10,000.
“In our view, Harvard has a responsibility to make its employees whole for its colossal error,” the professors said.
After the professors met with human resources officials this week, the university agreed to a restitution plan.
“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,” the university said in its e-mail.
The news was earlier reported by the website Universal Hub.