Tax
Safe harbor
A payment level that protects you from an underpayment penalty even if you end up owing more.
You can owe more than you paid without being penalised, provided you paid at least a defined minimum during the year. That minimum is 100% of last year’s total tax, or 110% if your adjusted gross income was over $150,000. Paying 90% of the current year’s actual tax also works.
The practical value is certainty. Last year’s number is already known, so a safe harbor payment can be computed in January and will not change, whereas 90% of the current year is a moving target until December.
It protects against the penalty, not against the bill. A good year still means a balance due in April; safe harbor only means the balance is not penalised.
In Contha
Contha takes the lesser of the two, which is what the rule actually allows, and counts any withholding against it.