What is Safe Harbor (Estimated Tax)?
Definition A safe harbor is a rule that protects you from an underpayment penalty as long as you prepay a set minimum, regardless of your final tax bill. For estimated taxes, you generally qualify by paying at least 90 percent of the current year's tax or 100 percent of last year's tax, with the prior-year figure rising to 110 percent for higher-income taxpayers. Meeting the safe harbor lets you defer the rest of any balance to the filing deadline without penalty.
Using the prior-year safe harbor gives clients with rising or unpredictable income a reliable way to avoid penalties while managing cash.