If you’re making quarterly estimated tax payments, missing a deadline or paying too little can be costly. The IRS currently charges the federal short-term interest rate plus 3%. In 2024, this ranged anywhere from 7% - 8%. To avoid an underpayment penalty, the IRS has a safe harbor rule. Individuals must make payments that are at least 90% of total tax due in the current year or 100% of tax paid in the previous year . If your AGI is greater than $150,000 ($75,000 if married filing separately), you must pay 110% of tax paid in the previous year.

Good News

But here’s good news: strategic withholding can often help you avoid or erase underpayment penalties—even late in the year.

Here's How It Works

While estimated tax payments are due on set dates (April 15, June 15, September 15, and January 15), withholding is treated differently. The IRS considers tax withheld from W-2 wages or IRA distributions as if paid evenly across all four quarters—or on the actual date withheld.

This means that if you’re short on estimated payments for the year, you may still have options:

• Have your S or C corporation pay you a year-end bonus and withhold additional taxes (though be mindful of added payroll taxes). 

• Adjust withholding from a W-2 job, and document the timing for quarterly allocation or direct identification. Even though the additional tax is withheld at hear end, the tax is deemed to have been spread evenly throughout the tax year. 

• Use an IRA “rollover and replace” strategy: take a distribution, withhold 100 percent for taxes, then redeposit the funds within 60 days to avoid tax on the withdrawal.

Each of these methods can help you meet IRS safe harbor rules and avoid penalties—often with more flexibility than standard estimated tax payments.

Looking to discuss your withholding strategy with an expert? Click here to schedule an appointment with one of Gold Standard's seasoned tax accountants.

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