Tax
Safe harbor
A safe harbor is a rule that protects a taxpayer from penalties where a specified condition is met. For US estimated tax, paying a set proportion of the prior year's tax liability generally avoids an underpayment penalty regardless of how much the current year's income grows.
In plain terms: A rule that stops you being penalised if you pay a defined minimum.
Why it matters
Valuable in a year when income rises sharply and is hard to forecast. Basing instalments on last year's known figure removes the penalty risk even if this year's liability turns out much larger. The specific percentages vary with income level — check current IRS guidance.
Read the full guideUS business taxes