To put it another way. There are 3 "safe harbors". "Taxes" are total owed with your return after deducting credits:1. 90% of current year's taxes paid by withholding and/or 4 equal and on time installments.2. Within $1,000 of current year's taxes paid by withholding ONLY.3. 100% (or this year, 110% if last year's AGI > $150K) of last year's taxes paid by withholding and/or 4 equal and on time installments.These are "Safe Harbors" because you don't have to file a Form 2210 if you meet any one of them, regardless of how much final tax you owe with your return. The installments don't have to be equal if they are cumulatively more than 1/4 of the total each quarter ( that is, more than 1/4 paid in the first quarter, 1/2 in the first two quarters, etc.)If you miss one of these safe harbors in AMOUNT, you can figure your penalty on the Short Method and complete only page 1 of Form 2210. If you don't complete page 1 of Form 2210, the IRS will figure your penalty for you but may not use #3 safe harbor.If you pay uneven or late installments, you must complete page 2 of Form 2210 (Regular Method) which allocates 1/4 of your total tax liability under either #1 or #3 above to each quarter and applies installments and withholding to meet your estimated tax liability for each quarter. You or the IRS can figure the penalty. You can apply each kind of withholding (W-2, 1099, etc) as paid, or averaged equally over the 4 quarters. If you think it is advantageous you can complete Schedule AI of the Form 2210 which Annualizes your income (and hence tax liability) for each quarter and applies withholding (as paid or averaged) and/or installments to satisfy your estimated tax liability. If you use this method you must figure the penalty or the IRS will figure it on the Regular Method. This method will never come up with any installment cumulatively greater than the Regular Method. It is usually advantageous if your tax liability is greater in later quarters, or your withholding and/or installments are greater in earlier quarters. It will automatically use safe harbor #1 and/or #3 if it is lower than your annualized liability. If a considerable portion of your income is in the form of late year mutual fund distributions, or you are a Trust distributing your income but retaining gains (most of which are from mutual fund distributions), or you have uneven income but it is considerable lower than last year, the Schedule AI will usually reduce your estimated tax payment liability (or underpayment penalty). If your income is greater than the prior year, the 1/4 of last year's tax safe harbor is usually advantageous. Since withholding can be averaged over all 4 quarters, overwithholding the minimum necessary amount in December (instead of paying any installments) is a nifty way to meet a safe harbor. The IRS publication 505 advocates trying to complete a Schedule AI to compute your installments, but is is woefully inadequate and virttually impossible to compute correctly if your tax situation is at all complex, involves AMT, High Income limitations, credits, etc. There is a calculator at http://www.edcosoft.com/qitc.html that will compute your current installment requirements. Any of the Tax programs will compute them with your final return, but that is too late to calculate what you owe each quarter, or compute overwithholding. You should never use a installment calculation method that is based on an estimate of current year's tax unless you can overwithhold in December to correct any deficiency. ed
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