Estimated Tax Safe Harbor: the facts

1. No underpayment addition applies if the amount paid in during the year, through withholding and timely estimates, is at least the lesser of 90 percent of this year's tax or 100 percent of last year's (§ 6654(d)(1)(B)).
2. If last year's adjusted gross income was above $150,000 ($75,000 married filing separately), the prior-year figure is 110 percent instead (§ 6654(d)(1)(C)).
3. Nothing is owed either way if the tax left after withholding is under $1,000 (§ 6654(e)(1)).
4. Withholding is treated as paid in equal parts on the four due dates whenever it was actually withheld (§ 6654(g)). An estimated payment counts only when made. So a withholding from an IRA or pension distribution in December cures a whole year's shortfall; a December estimate cures only the last quarter's.
5. Example: last year's tax was $20,000; this year, with a large conversion or sale, it will be $40,000. The safe harbor is $20,000, the prior-year figure, not $36,000. With $15,000 withheld, $5,000 more withheld before December 31 makes the year safe; the remaining $20,000 is simply due with the return.
6. The due dates are April 15, June 15, September 15, and January 15 of the next year. A first-year retiree with no withholding on a new pension is the classic underpayer; the fix is a Form W-4P.

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