Avoiding underpayment penalty clarification

[RWD]

I've seen this called Safe Harbor though it doesn't seem like the IRS site uses that wording.

The IRS site says you can avoid the penalty if: "You paid at least 90% of the tax shown on the return for the taxable year or 100% of the tax shown on the return for the prior year, whichever amount is less."

My question is whether this refers to line 16 ("tax") or line 24 ("total tax"). We installed solar in 2024 resulting in a very low "total tax" (about 75% less than the "tax"). Could we in theory just withhold 110% (AGI over $150k) of line 24 in 2025 and avoid a penalty? At the rate we're going we'll have achieved that in early April, haha.

Not that I think we should do that, would result in a 5-figure amount owed when we file our 2025 taxes in 2026. Just curious if I'm interpreting correctly.

[NotJen]

See the instructions on the 1040-ES form: https://www.irs.gov/forms-pubs/about-form-1040-es

Figuring your 2024 tax. Use the following instructions
to figure your 2024 tax.
The tax shown on your 2024 Form 1040 or 1040-SR is
the amount on Form 1040 or 1040-SR, line 24, reduced
by:
1. Unreported social security and Medicare tax or
RRTA tax from Schedule 2 (Form 1040), lines 5 and 6;
2. Any tax included on Schedule 2 (Form 1040), line 8,
on excess contributions to an IRA, Archer MSA, Coverdell
education savings account, health savings account, ABLE
account, or on excess accumulations in qualified
retirement plans;
3. Amounts on Schedule 2 (Form 1040) as listed
under Exception 2, earlier; and
4. Any refundable credit amounts on Form 1040 or
1040-SR, lines 27, 28, and 29, and Schedule 3 (Form
1040), lines 9 and 12.

[RWD]

Thanks!

[terran]

Do note that the safe harbors only work if you make the payments that meet the safe harbor through withholding, through 4 equal estimated payments, or through estimated payments that coincide with when the income was earned (the last requiring filling out a more complicated version of Form 2210).

[MDM]

...4 equal estimated payments....

That is no longer a requirement.  Part III of https://www.irs.gov/pub/irs-pdf/f2210.pdf can suffice (without needing to fill Schedule AI) if the estimated payments, combined with any withholding, are "front loaded" enough.  See also the Safe harbors section in that wiki article.

[terran]

...4 equal estimated payments....

That is no longer a requirement.  Part III of https://www.irs.gov/pub/irs-pdf/f2210.pdf can suffice (without needing to fill Schedule AI) if the estimated payments, combined with any withholding, are "front loaded" enough.  See also the Safe harbors section in that wiki article.

Interesting, thanks. So now schedule AI is only necessary if you want to show unequal income (justifying late in the year payments), not unequal payments? 

[MDM]

...4 equal estimated payments....

That is no longer a requirement.  Part III of https://www.irs.gov/pub/irs-pdf/f2210.pdf can suffice (without needing to fill Schedule AI) if the estimated payments, combined with any withholding, are "front loaded" enough.  See also the Safe harbors section in that wiki article.

Interesting, thanks. So now schedule AI is only necessary if you want to show unequal income (justifying late in the year payments), not unequal payments?

That seems a good way to look at it.