Can I avoid penalty by using estimated quarterly payments?

Q: I recently became an independent contractor and will need to make estimated quarterly payments. Though my tax liability will be far greater this year than last, my understanding is that I will avoid any penalty simply by paying the amount of the prior year's total tax liability in four installments. Is this correct? --Chris, Boston

The following answer was provided by Larry Carlton, CPA, Carlton & Duran CPAs, PC.

A: That is partially correct. If your 2003 Adjusted Gross Income (AGI) was less than $150,000, there is no penalty as long as you pay in the 2003 tax in four installments. If your 2003 AGI exceeded $150,000, you must pay in 110% of the 2003 tax to avoid underpayment penalties.

Massachusetts only requires that you meet the 100% rule.