The standard advice on estimated tax is: pay in what last year’s tax was, and the
underpayment penalty cannot reach you however this year turns out. It is good advice and it rests on
a clause the statute switches off for two groups — one of which is everybody in their first
US year. No prior-year return means no prior-year harbour, in precisely the year the income
is least predictable.
Your year
The rulebook, verified
The required payment is the LESSER of two tests verified
The required annual payment is the lesser of 90 PERCENT OF THE TAX SHOWN ON THE RETURN FOR THE TAXABLE YEAR (or, if no return is filed, ninety percent of the tax for that year), or 100 PERCENT OF THE TAX SHOWN ON THE RETURN OF THE INDIVIDUAL FOR THE PRECEDING TAXABLE YEAR. Because it is the lesser, the second route is what protects somebody whose income jumps: last year's tax is a known, fixed number, and paying it in is enough no matter what this year turns into.
The prior-year route is closed if there was no prior-year return verified
The statute provides that the prior-year clause SHALL NOT APPLY IF THE PRECEDING TAXABLE YEAR WAS NOT A TAXABLE YEAR OF 12 MONTHS OR IF THE INDIVIDUAL DID NOT FILE A RETURN FOR SUCH PRECEDING TAXABLE YEAR. For a first-year arrival both limbs can bite. There is no prior US return, so the only harbour left is the ninety-percent current-year test — which has to be estimated forward, in a year whose income is by definition unfamiliar, with no fixed number to fall back on.
Above a threshold, the prior-year route costs 110 percent rather than 100 verified
Where the adjusted gross income shown on the preceding year's return EXCEEDS ONE HUNDRED AND FIFTY THOUSAND DOLLARS, the prior-year clause is applied BY SUBSTITUTING '110 PERCENT' FOR '100 PERCENT'. So the harbour still exists for a higher earner, it simply sits ten percent higher. Somebody who paid in exactly last year's tax because they had always been told that was enough can be short by that margin alone, and the shortfall is invisible until it is assessed.
What the penalty would be is not on this page verified
Nothing here computes a penalty or says what anybody should pay. The charge is worked out period by period at an interest rate the Internal Revenue Service sets and revises, against a return this page never sees. What is knowable in advance, and what this page carries, is WHICH HARBOUR is open to you — because that is structural, it is decided by facts you already know in January, and it is the part that changes what somebody should do.
No amount appears here, and nothing on this page computes a penalty or tells you
what to pay. The charge is worked out period by period at an interest rate the Service sets and
revises, against a return this page never sees — and the obvious next question after “you have no
safe harbour” is “so what will it cost”, which is exactly the question a web page should not answer
with an estimate. What is knowable in advance is which harbour is open to you, and that is
decided by facts you already have in January. Take that to a preparer early: the remedy for this is
paying in during the year, and it stops being available once the year is over.
We already computed the public version — it is complete and stays free.
Keep your first-year dates in one place and the Square knows which harbour you have: Join DesiSquare and the Square remembers your dates, re-runs this
when the rules change, and puts a credentialed human one message away.