Safe Harbor Rule - Do I Need to Make Estimated Tax Payments with RSU & ESPP Income?

Hey all, need some advice about the safe harbor rule and estimated tax payments. For my 2024 return, Line 24 shows $58,392. I've got one full-time job, and my W2 has federal income tax withheld (box 2) of $71,254. I've been playing around with both TaxAct and FreeTaxUSA, and after going through all the calculations about what I owe, it looks like TaxAct is saying I'm getting hit with an underpayment penalty. Throughout last year, I had income from RSUs and employee stock purchase plans (ESPP), but I didn't make any quarterly estimated tax payments. From what I understand, I shouldn't be getting penalized since just based on the withholding from my W2 alone, I've already met the 110% requirement for the safe harbor rule. Do I need to file some special form to show this? Or will the tax software figure it out later in the process? Really appreciate any help on this!

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18 comments

CosmosCaptain

•8M

You're right about the safe harbor rule! If your withholding covers at least 110% of your previous year's tax liability (which it sounds like it does since $71,254 is well above $58,392 + 10%), you should be protected from the underpayment penalty. The form that handles this is Form 2210 "Underpayment of Estimated Tax." Most tax software should automatically complete this form for you and determine if you qualify for an exception. It sounds like TaxAct might not be recognizing your safe harbor status yet. Make sure you've entered all your information correctly, especially the previous year's AGI and tax liability. Sometimes the software needs this to properly calculate safe harbor protections. You might need to check a box somewhere that indicates you're claiming an exception to the penalty.

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CosmosCaptain

•8M

The tax software should handle Form 2210 automatically for most situations. You typically only need to manually complete it if you have special circumstances or want to request a waiver. Just make sure you've completed all the income sections accurately. Your RSUs and ESPP income don't change how the safe harbor rule works. They increase your total tax liability for the current year, but the safe harbor is based on your previous year's tax liability. As long as your withholding covers 110% of last year's tax, you're protected - regardless of how much additional income you had this year.

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Freya Johansen

•8M

After struggling with a similar RSU and penalty situation last year, I found this amazing tool called taxr.ai (https://taxr.ai) that helped clarify everything about my stock compensation and tax withholding requirements. It analyzed my documents and clearly explained why I was getting hit with a penalty even though I thought I was covered. The tool showed me exactly how my RSUs were being reported and what specific safe harbor rules applied in my situation. It was like having a tax professional review everything without the high cost. For your situation, it could confirm if you're genuinely covered under the safe harbor rule or if there's something else in your return triggering that penalty warning.

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Freya Johansen

•8M

Yes, it works with all types of equity compensation including ISOs, NSOs, RSUs, and ESPP. For ISOs specifically, it has a special module that explains the AMT implications and helps you understand when estimated payments are needed based on your exercise schedule. It connects with your previous tax returns to accurately calculate safe harbor thresholds. You simply upload last year's return alongside your current documents, and it compares your current withholding against the previous year's liability. What makes it different from TurboTax is that it specifically focuses on equity compensation issues and provides detailed explanations about why penalties are being applied or not. It actually showed me that TurboTax was incorrectly calculating my safe harbor status because it wasn't properly accounting for some of my RSU withholding.

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Chloe Wilson

•8M

I tried taxr.ai after posting my skeptical comment and wow - I was totally wrong! I've been dealing with RSU income for years and constantly getting hit with penalties despite thinking I was covered by safe harbor rules. The tool immediately identified that my company was withholding at supplemental rates (22%) rather than my actual tax bracket (32%), creating a shortfall every year. The analysis showed exactly how much additional withholding I needed each quarter to stay compliant. I was able to adjust my W-4 and set up some additional withholding that should prevent penalties going forward. It also explained why TurboTax kept showing penalties - turns out I was missing a specific place to indicate my withholding pattern throughout the year. Definitely helped me understand the safe harbor rules better than years of reading IRS publications!

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Diego Mendoza

•8M

If you're seeing an underpayment penalty pop up in your tax software and you think you should be covered by safe harbor, you might need to talk directly to the IRS to sort it out. That used to mean hours or days of trying to get through on the phone... until I found Claimyr (https://claimyr.com). I was trying to explain to the IRS that my withholding met safe harbor requirements but kept getting disconnected or waiting for hours. Claimyr got me connected to an actual IRS agent in about 15 minutes! They have this really cool system that handles the waiting for you and calls you back when an agent is ready to talk. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The IRS agent confirmed I was right about my safe harbor status and explained exactly how to document it properly on my return. Saved me from paying penalties I didn't actually owe.

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Diego Mendoza

•8M

The system works by using their technology to navigate the IRS phone tree and wait in the queue on your behalf. It's not some magical "skip the line" thing - they just handle the painful part of waiting so you don't have to. They use a combination of AI and real people to monitor the call and navigate through all the prompts. When they finally reach a point where an actual IRS agent is about to come on the line, they call you and connect you directly to that agent. I was skeptical too, but it really does work - I was shocked when my phone rang and I was immediately talking to an IRS representative instead of hearing more hold music.

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StellarSurfer

•8M

I have to apologize for being so skeptical about Claimyr in my earlier comment. After struggling with the safe harbor penalty issue for weeks, I finally tried it. I expected it to be a waste of money but I was desperate. To my complete shock, I got a call back in about 20 minutes with an actual IRS agent on the line! The agent reviewed my situation and confirmed that my withholding did qualify me for safe harbor protection. She explained that there was a specific checkbox in the Form 2210 section that needed to be selected to indicate I met the exception. The agent stayed on the phone while I pulled up my tax software and found the exact spot where I needed to make the change. Once I did that, the penalty completely disappeared from my return. That 20-minute call saved me over $800 in penalties!

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Sean Kelly

•8M

For what it's worth, I had this exact same issue last year with RSUs and ESPP income. The key thing that fixed it for me was checking the box on Form 2210 that indicates you're using the annualized income installment method. My RSUs vested unevenly throughout the year (big chunk in Q4), which threw off the quarterly estimated tax calculations. When I used the annualized method, the software correctly recognized that my withholding was sufficient relative to when the income was actually received.

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Sean Kelly

•8M

In both TaxAct and FreeTaxUSA, you'll need to go to the Form 2210 section. It's usually under "Other Taxes" or sometimes "Payments and Penalties." Look for something like "Underpayment of Estimated Tax" or directly for Form 2210. Once you're there, there should be a question asking if you want to use the regular method or the annualized income installment method. Select the annualized option. You might need to check a box that says something like "My income varied during the year" or "I want to use the annualized income installment method." The software will then ask for quarterly breakdowns of your income and withholding, which better accounts for the uneven RSU vesting schedule.

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