It amazes me that people *still* give the government interest free loans. Getting money back via your tax return is bad. I strive to owe the government the maximum amount I can each year without penalty.
This is what I said yesterday about this:
Here are a couple reasons why I don't worry too much about this:
1) Especially right now, that money wouldn't earn much elsewhere, especially if you put it into a safe investment. If you just keep it in a bank account, for most people it's probably barely worth it. (The average refund is about $3000 in 2011, the date I happened to see. Put in an online savings account with 0.95% interest (the highest MMA/savings on bankrate.com) and you'd make a whopping $15.48 over the course of the year. I guess that'd buy one person a decent dinner or so.)
If this was in 2007 or something when you could get a 5% account, things would be different. (That'd be $387.)
(I guess that is the federal-only figure. Would be slightly higher with state refunds, though at least for me those have always been much less.)
2) Fewer things to worry about come tax time. There are penalties for under-withholding, at least in some conditions. Overwithholding a little protects you from these.
3) I am not even sure if it's legal to decrease my withholding, for example. I've claimed the exemption that the W-4 instruction allows, and I don't even know if it is legal for me to claim more, or if there is another way to reduce withholding. I've looked into it a little bit, but it's not worth my time to look into the various IRS pubs.