"safe harbor"? Haven't heard of it, care to explain?One of the few "nice" tax laws. Basically the IRS admits people are not actually able to predict the future. So if you pay enough taxes based on what you earned last year you won't have to pay a penalty when you pay the balance on April 15th.Here's a web page that talks about who needs to pay estimated taxes, which also covers the safe harbor rule:http://www.fairmark.com/estimate/whomust.htmThe safe harbor rule is great when your income is going up. I'll use the example of the current year, so we're talking about 2003 taxes (due on April, 2004)It states that if you pay on time for 2003 as much money as you owed for your 2002 taxes, you won't be penalized in April 2004, even if you owe a lot of money.Otherwise if you owe over $1000 when tax day rolls around you'll have to pay a penalty, in addition to the tax. This is because the IRS thinks you owe them the money when you earn it, which is usually before tax day.The good news is, all witholding is considered to be "on-time" payment. So lets say Mare's mural income goes through the roof and she's going to owe lots of taxes. Instead of sending estimated tax payments in September and December, she can increase the witholding at her other job .(The above rules apply if your adjusted gross income is under $150,000, otherwise they're slightly different.)Does that make sense? It's been a while since I've tried to answer a tax faq.- Megan
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