Hey everyone, I’m looking for a second opinion on something my tax advisor told me.
I’m planning to sell company stock this August. To keep things simple and avoid an underpayment penalty, my plan was to use the Safe Harbor rule by paying 110% of what I owed last year in estimated taxes and then just cutting a check for the rest of the capital gains before April 15, 2027.
My tax advisor is saying that while this will definitely avoid the penalty, I’ll still be on the hook for interest on the underpayment from the time of the sale until I pay it off in April.
I thought the whole point of the Safe Harbor was that if you hit those numbers (the 110% mark), you're essentially "safe" from both the penalty and the interest on the difference until the tax deadline.
Has anyone dealt with this specifically for a large one-time gain? Does the IRS still charge interest if you’ve technically met the Safe Harbor requirements?
Any insight would be huge. Thanks!
Safe harbor : Does it stop interest?
byu/Technical-Award-5246 intax
Posted by Technical-Award-5246
4 Comments
That’s wrong your understanding is correct. Pay by 4/15 and no further penalties or interest
Advice: find a new tax advisor!
You are correct; as terpfan101 commented, if you pay by April 15, 2027, no penalty or interest.
Question for tax experts : does the quarter the estimated payments are made matter?
I use w2 withholdings to cover tax withholding obligations on my stock sales cause you needed to match your estimated quarterly payments to the quarter the income was made. Is that not the case?
The underpayment penalty *is* interest. They are the same thing, not two separate charges (it’s called a “penalty for underpayment of estimated tax” but the amount is figured as daily simple interest on the underpayment amount).
However, any plan to “pay 110% of what I owed last year in estimated taxes” must be **timely** – in equal quarterly installments starting April 15, 2026 after accounting for withholding. There is no magic “safe harbor”, it simply takes the form of one method of computing the required minimum payment being 27.5% of prior-year total tax in each quarter.
You can further reduce the minimum required payment for the first two quarters of 2026 to 90% of your actual estimated tax, but this requires computing this figure and filing it with your return on Schedule AI (Form 2210). You can also use withholding payments to retroactively meet a payment requirement as withholding is deemed paid equally on each quarterly date, regardless of when withheld.