At Collective, we help members stay on track with quarterly taxes using the IRS Safe Harbor method — a widely used approach based on last year’s taxes that reduces the risk of underpayment penalties. This approach is designed to offer predictability and reduce the risk of underpayment penalties and interest, even if your income increases during the year.
For those with complex tax situations, members can use our guided tax estimates experience where we give you the flexibility to modify business projections based on your expectations.
What is safe harbor?
The IRS safe harbor rule protects you from underpayment penalties and interest as long as you follow their calculation requirements and meet certain thresholds. It's a straightforward approach to estimate your taxes for the year.
Here’s how it works:
The IRS allows you to use the Safe Harbor rule, which means you won’t owe underpayment penalties as long as you pay:
- 100% of last year’s total tax, or
- 110% if your adjusted gross income (AGI) was over $150,000 individually (or $75,000 if married filing separately)
These amounts are divided evenly into four quarterly payments.
Note: Each state has their own Safe Harbor threshold and calculation, and you can find relevant details on your Quarterly estimates dashboard.
Example
Your AGI was $160,000 and you owed $18,000 in total tax last year
You’d pay $19,800 total (110%), or $4,950 per quarter
What safe harbor covers
Paying the safe harbor amount protects you from underpayment penalties and interest, even if your current-year tax bill ends up being higher. That said, it may not cover your entire tax balance if your income increases significantly.
If you know your income has grown, you have options:
- Increase your safe harbor payments manually without doing a full calculation (for example, bumping your payment by 10% if your income increased 10%)
- Use Collective’s guided tax estimates experience to calculate a more tailored estimate
When safe harbor works well
Safe harbor is a good fit for most members who:
- Expect similar income to last year
- Want a straightforward way to avoid underpayment penalties
- Prefer not to recalculate estimates every quarter
It’s also flexible; you can increase payments any time, even when using safe harbor.
When you might want a guided estimate
You may want to explore our guided tax estimates experience if:
- Your business is growing rapidly
- You’ve added new income streams (wages, investments, or freelance work)
- You moved states or expect a more complex tax year
You can use safe harbor as a starting point and adjust from there, or use our guided estimates experience to customize your business projections.
What Collective offers
- Safe harbor estimates automatically calculated from your most recent tax return
- Guided estimates experience using your business projections, which you can adjust and customize with additional income
- Flexibility to increase payments at your discretion
Key takeaways
- Safe harbor is one of the most common IRS-approved methods for paying quarterly taxes
- It protects you from underpayment penalties and interest, though it may not cover your full current-year balance and you may still owe taxes at year end
- You can increase your quarterly payments without recalculating your estimate
- Guided tax estimates are available if your income or tax situation has changed significantly
- Collective provides support in both approaches so you can choose what fits best
The information provided on our website, blogs, and help articles is for general informational purposes only. It is not intended as tax, legal, or professional advice. The content focuses on how to use our services and does not substitute for professional consultation with your attorney and/or tax advisor to get answers to your specific questions and circumstances.