Why make quarterly estimated payments?

Making quarterly estimated payments is essential to avoid underpayment penalties from the IRS. Brad Barrett explains the principle of the "safe harbor rule," which states that no underpayment penalty is charged if you pay at least 90% of the taxes owed for the current year, or 100% (110% for high income earners) of the tax owed for the previous year. This rule allows taxpayers to manage their payments more predictably, especially when past year's tax liability is known and can be divided over four quarters. For high-income taxpayers, the requirement is slightly higher, where they must pay 110% of the previous year's liability if their adjusted gross income (AGI) is over $150,000 1.