Can I Avoid an Underpayment Penalty?

Yes — you can avoid the underpayment penalty by meeting one of three "safe harbors": paying at least 90% of your current year's tax liability, paying 100% of last year's tax liability (or 110% if last year's AGI was over $150,000), or owing less than $1,000 after subtracting withholding and credits. The 100%/110% of prior year tax safe harbor is the easiest to plan around — just match what you paid last year. If you had a large income spike (like selling a business or exercising stock options), the 90% of current year test is harder to hit but still achievable with careful estimated tax payments. The penalty is calculated on Form 2210 but is often automatically assessed by the IRS if you owe more than $1,000.