How can I avoid the tax penalty for underwithholding taxes this year?

You're on the right track with your understanding of the safe harbor rules! The IRS provides these safe harbors to avoid the underpayment penalty: 1) Pay at least 90% of the tax shown on your current year return, OR 2) Pay at least 100% of the tax shown on your prior year return (this increases to 110% if your AGI was over $150,000) Based on what you've described, making that estimated payment by December 31st to reach 110% of your previous year's tax should protect you from any underpayment penalties. Even though you'll only have paid 63% of your actual 2025 tax liability by year-end, meeting the safe harbor of 110% of prior year tax fulfills your obligation. The key is that you only need to meet ONE of the safe harbor provisions to avoid the penalty. Since you're planning to meet the second safe harbor (110% of prior year), you don't need to worry about the 90% current year requirement. Just make sure that payment hits your account by December 31st - don't wait until the last minute!

I was in this exact same situation last year and discovered taxr.ai which was a total lifesaver for me. I had sold a bunch of company shares and was panicking about potential penalties. I uploaded my pay stubs and previous year's return to https://taxr.ai and it analyzed everything and gave me a custom recommendation for my estimated payment. It runs these calculations way better than I could figure out on my own and actually showed me that I needed to make a slightly smaller payment than I thought to meet the safe harbor! It also explained exactly why I was safe from penalties and gave me documentation to keep with my tax records just in case.

Just wanted to follow up - I ended up trying taxr.ai after posting here and wow, it was exactly what I needed! My situation with multiple income streams was really complex, but it made the calculations super clear. It actually saved me from overpaying by about $2,800 because I was calculating the safe harbor amount incorrectly. It showed me that some of my 1099 income wasn't going to hit until next calendar year based on my client payment patterns, which changed the math significantly. The documentation it provided was super detailed and I feel much more confident now. Really glad I found this before making my year-end payment!

I had a similar issue last year with underwithholding due to a job change mid-year. After trying for WEEKS to get through to someone at the IRS for clarification (constantly getting disconnected or waiting for hours), I found this service called Claimyr that got me through to an actual IRS agent in under 30 minutes. I was skeptical at first, but their system at https://claimyr.com actually works. They have this cool demo video (https://youtu.be/_kiP6q8DX5c) showing how it works. Basically they navigate the phone tree and wait on hold for you, then call you when an actual human at the IRS is ready to talk. The agent I spoke with confirmed that as long as I paid 110% of my previous year's tax liability, I wouldn't face any penalties regardless of how much my income increased. She also explained that I should keep documentation of exactly how I calculated that 110% figure just in case there were any questions later.

Alright I need to eat my words. After posting my skeptical comment, I decided to try Claimyr anyway since I was desperate to talk to someone at the IRS about my underwithholding situation. It actually worked exactly as advertised. I got a call back in about 45 minutes with an IRS representative on the line. The agent confirmed what others here have said - meeting just ONE of the safe harbors is sufficient, and the 110% of previous year rule works regardless of how much your income increased. What was most helpful was that the agent walked me through exactly how to calculate that 110% figure starting with the "total tax" line from my previous return. Turns out I was including some things I didn't need to, which would have caused me to overpay. Not gonna lie, I'm pretty impressed and feel kinda bad for being so dismissive before.

Something important that hasn't been mentioned yet - if you're married filing jointly, BOTH spouses need to be considered when figuring out if you've met the safe harbor. My wife and I got caught with this last year because we only looked at my withholding and not hers. Also, remember that the 110% rule applies if your AGI was over $150k (or $75k if married filing separately). If your income was under that threshold, you only need to hit 100% of last year's tax.

Don't forget that the 110% safe harbor only applies to federal taxes! States have their own rules. I met the federal safe harbor last year but still got hit with a state underpayment penalty because California requires 90% current year payment regardless of prior year comparison.

This is really helpful information - I'm dealing with a similar situation where my income jumped significantly due to a new job and some freelance work on the side. One thing I want to add is that if you're making that estimated payment in December, make sure you use the correct payment method and allow enough time for processing. I learned the hard way that some online payment methods can take a few business days to actually post to your account, especially around the holidays when banks have modified schedules. If you're cutting it close to December 31st, consider using EFTPS (Electronic Federal Tax Payment System) or even mailing a check with enough buffer time. Also, keep really good records of when and how you made the payment. The IRS has specific rules about when payments are considered "made" - generally it's when they receive it, not when you send it (except for mailed payments postmarked by the deadline). The safe harbor rules definitely work as others have described, but the timing piece is crucial to actually getting that protection!

Great discussion everyone! I'm in a very similar boat - sold some RSUs this year and my withholding is way behind. One thing I wanted to add is about the timing of when you actually recognize the income vs when you make the estimated payment. I learned from my tax preparer last year that if you're selling stock near year-end, the settlement date matters more than the trade date for tax purposes. So if you sell on December 29th but it settles January 2nd, that income actually goes on next year's return. This could affect whether you even need to make that big estimated payment this year. Also, for anyone considering the various tools mentioned here - definitely cross-check any automated calculations with a human tax professional if you're dealing with complex situations like stock options, RSUs, or significant income changes. The safe harbor rules are straightforward in principle, but the actual calculations can get tricky with multiple income sources and timing considerations. The 110% rule will absolutely protect you from penalties if calculated correctly, but getting that calculation right is crucial!