Oops! Yale Payroll Error Costs Gay Employees

Yale University says it made a payroll error that resulted in under-withholding for 61 employees with same-sex partners.  Yale failed to withhold federal taxes on the value of domestic partner health insurance during 2010. 

Same-sex marriage is legal in Connecticut, where Yale is located, but the federal government does not recognize same-sex marriage.  The issue here is taxability of health insurance provided to a same-sex spouse.  Connecticut does not tax the value of such health insurance, but the federal government does.  A programming error in Yale’s payroll system treated the health insurance as not taxable for both state and federal purposes, instead of just for state purposes, so federal taxes were not withheld on the value of the insurance.

The affected employees will see smaller paychecks in 2011, because they’ll not only have “regular” withholding for 2011, but they’ll also have the 2010 under-withholding withheld from their paychecks in 2011.

Read all about it in this New York Times blog.