Four of the last seven US Treasury secretaries hold Harvard degrees, but that hasn't stopped the august university from running into problems with federal taxes.
Harvard University officials acknowledged Friday that a mistake in tax reporting led 11,000 employees to pay taxes on income they did not receive — to the tune of millions of dollars — between 2009 and 2013.
The university pledged on Friday to reimburse employees for the excess taxes they paid or help them file amended returns.
But that promise came only after a scathing critique from two Harvard Law School professors, Alvin C. Warren and Daniel I. Halperin. The professors wrote to colleagues this week that the letter the Harvard benefits office sent affected employees in January was “misleading as to both the scope of the problem and the university’s responsibility to make some 11,000 employees whole for a monumental mistake by the central administration.”
In all, Harvard erroneously reported more than $20 million to the IRS between 2009 and 2013, according to a letter sent to affected employees Friday by Marilyn Hausammann, vice president for human resources.
As a result, a small number of employees paid as much as $3,000 to $4,000 too much in taxes last year, Halperin estimated. Hundreds paid a few hundred dollars extra.
“We regret this mistake, offer our sincere apologies to those affected, and are working to remedy the situation as comprehensively and swiftly as possible, ” Harvard spokesman Paul Andrew said in a statement Friday evening.
The Globe obtained the law professors’ memo, as well as Harvard’s letter of apology e-mailed to employees on Friday. The developments were initially reported by the website Universal Hub.
Due to a “peculiar IRS rule,” Harvard’s supplemental life insurance policy was until 2009 regarded by the Internal Revenue Service as a taxable subsidy that had to be reported as income by employees enrolled in the policy, Halperin said in an interview. That year, he said, Harvard changed the life insurance plan for unrelated reasons, but apparently no one realized the changes meant the insurance was no longer a taxable subsidy.
Harvard’s first letter on the matter to employees, dated Jan. 21, told them that for many, the amount of over-reported income was less than $200 per year, according to the two law professors. But Hausammann revealed Friday that about 13 percent of affected employees paid taxes on more than $1,000 in imputed income in 2013, meaning they paid hundreds of dollars in unnecessary taxes that year alone. “For a small number of individuals,” Hausammann said, the mistake amounted to more than $10,000 of imputed income in 2013.
And how could this happen at the academic home of Lawrence H. Summers, who served as president of Harvard sandwiched between a stint as treasury secretary and another as the top economic adviser to President Obama?
“Larry Summers is not doing the payroll,” noted Halperin, who specializes in employee benefits law. “I don’t think Harvard is any different from anybody else. The people who are in human resources and accounting, I don’t think are any different from people employed in other places.”
Halperin and Warren were so concerned by Harvard’s Jan. 21 notification to employees that they set up a meeting with Hausammann and other administrators. Then, on Tuesday, the two professors e-mailed law school faculty and staff a memo titled “Major Harvard Tax Error,” which detailed flaws in the university’s initial announcement.
They said the university had not only understated the financial impact on employees, but had also misstated the law by telling them that the IRS would not allow Harvard to assist employees in seeking a refund. Harvard’s Jan. 21 notification to employees also did not offer to repay them for the cost of filing amended returns, the professors wrote, or even acknowledge that the problem went back as far as 2009 and 2010, years for which employees will not be able to claim refunds because of the statute of limitations involved.
“In our view, Harvard has a responsibility to make its employees whole for its colossal error,” they wrote.
And on Friday, Harvard said it would do just that, ensuring employees would be repaid by Harvard or the government, and offering information on how to file an amended return. Hausammann also told employees that the university would undertake a review, with the help of outside experts, of how Harvard handles tax and benefit matters.