How to Avoid an Underpayment Penalty

Learn the IRS safe harbor rules and payment strategies to avoid underpayment penalties on your taxes.

1. Know the safe harbor thresholds. The IRS won't penalize you if you pay at least 90% of this year's total tax owed OR 100% of last year's tax bill through withholding and estimated payments. If your adjusted gross income was over $150,000 last year, you need to pay 110% of last year's bill to qualify for safe harbor protection.
2. Calculate your required annual payment. Look at last year's tax return and find your total tax owed (not your refund or balance due). Multiply that number by 100% if you earned under $150,000, or 110% if you earned more. This is your safe harbor target for the current year.
3. Track what you've already paid. Add up all federal income tax withheld from paychecks so far this year plus any quarterly estimated tax payments you've made. Check your pay stubs for year-to-date withholding amounts.
4. Increase withholding or make quarterly payments. If you're behind on your safe harbor target, either increase your payroll withholding by filing a new W-4 with your employer or make quarterly estimated tax payments by the deadlines (January 15, April 15, June 17, and September 16 for 2026). Withholding is treated as paid evenly throughout the year, while quarterly payments must be made by specific dates.
5. Consider the timing advantage of withholding. If you're scrambling near year-end, increasing payroll withholding is usually better than making a large estimated payment. The IRS treats withholding as if it was paid evenly all year, even if it all comes from December paychecks.