Generally, an underpayment penalty can be avoided if you use the safe harbor rule for payments described below. The IRS will not charge an underpayment penalty if you pay at least:
- 90% of the tax you owe for the current year, or
- 100% of the tax you owed for the previous tax year.
This rule is altered slightly for high-income taxpayers. If the adjusted gross income on your previous year’s return is over $150,000 (over $75,000 if you are married filing separately), you must pay the lower of 90% of the tax shown on the current year’s return or 110% of the tax shown on the return for the previous year.
However, if you do not pay at least that much via quarterly estimated payments, you may be subject to an underpayment penalty.
