Yes. It looks your interpretation of the IRS Safe Harbor rules for estimated tax payments is correct. Here's how it works:
- Safe Harbor Requirements: To avoid an underpayment penalty, you must meet one of the following conditions:
- Pay at least 90% of the tax owed for the current year (2025),
- or pay 110% of the tax owed for the previous year (2024) if your adjusted gross income (AGI) exceeds $150,000.
Application to Your Situation: Since your 2025 income is higher than 2024, paying 110% of your 2024 taxes should satisfy the Safe Harbor rule, even if it doesn't cover 90% of your 2025 tax liability. This ensures you won't face penalties for underpayment, as long as the payments are made on time.
Quarterly Payments: Make sure your quarterly estimated payments are timely and based on the Safe Harbor amount (110% of 2024 taxes). If your income fluctuates significantly during the year, you might consider using the annualized income installment method (Form 2210, Schedule AI) to adjust payments based on actual income received.
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