Oops: Harvard mistake means thousands of employees probably paid too much in income tax for several years

UPDATE: Marilyn Hausammann, VP for human resources, sent out a new memo to staffers today: Harvard will reimburse them for excess 2009 and 2010 taxes, with interest, and pay for tax-prep help for filing amended returns for later years. Her memo is attached.

Harvard recently notified 11,000 current and former employees that a mistake in the way it calculated the value of supplemental life insurance meant they probably paid too much in income tax between 2009 and 2013, because in many cases, the life insurance was listed on their W-2 forms as taxable income, when it wasn't.

The note suggested employees file amended returns with the feds and the state.

Naturally, you don't send a memo like that out at a place like Harvard without faculty members at one of the nation's leading law schools taking a close look. Which is just what HLS professors Alvin Warren and Daniel Halperin, both kind of big deals in income-tax circles, did.

Among other things,Warren and Halperin write in their own memo on the memo, the university should reimburse all affected employees - with interest, of course - especially since a federal statue of limitations means they probably won't be able to file amended returns for the earlier years.

The letter does not accurately present the scope of the problem. It says that "For many people, the amount of the over-reported income was less that $200 per year." That is true, but for some employees, the amount exceeds $10,000. Nowhere is the total scope of the problem frankly presented. We were told in our meeting that more than 11,000 current and former employees are affected, with the total amount of overreported income exceeding $20,000,000. In our judgment, to mention in the letter only those employees for whom the amount involved is less than $200 per year is misleading as to the true extent of the problem.



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    You generally have 3 years

    By on

    You generally have 3 years from the day you file your taxes to correct a mistake. So only the 2009 returns (or maybe 2010 for people who filed early) can't be corrected.

    What I want to know: If this affected 11,000 people, why did none of them (or their accountants) catch the mistake until now? All it should have taken was one person calling HR to ask about this.

    Warren and Halpern

    By on

    If they are such big deals in tax circles, why didn't they catch this error earlier?

    Because that wasn't their job

    By on

    Because that wasn't their job? Their job is to be experts in the law and to teach the law, not to prepare W-2s for the university...