There's no denying the feel-good factor of getting cash back.
"Psychologically, it's not a terrible thing to have a little bit of a refund," said Jeffrey Levine, chief retirement strategist at Ed Slott and Co. in Rockville Centre, New York. "But if you overpay throughout the year, it's not the right move."
Here's how to evaluate your withholding and make sure it's just right for you.
Review your W-4: Striking a balance for withholding will be based on your salary, your spouse's earnings, the tax bracket you're in and the deductions you take. If you decide to withhold less for taxes, be smart with your money. "Contribute to a dependent care plan at work," said Weston. "If you have a high-deductible medical plan, set aside some money into your health savings account."
Compare your tax returns: How did your tax load shape up last year, and how does it compare to this year? "Unless you've had a major change in your life your deductions are similar year-to-year," said Levine.
"If your effective tax rate was 20 percent on average last year, check your allowances to make sure you're close to 20 percent now," he said.
Talk to your accountant: The right amount of tax to withhold will vary from one family to the next.
For example, if you are a high earner and have no mortgage and no kids, it might make sense to withhold more for taxes. Conversely, a working couple earning less than $100,000 with three kids and a mortgage may be able to withhold less, due to the credits and deductions they can take.
Calculating your withholding is even more complicated if you have multiple sources of income: distributions from retirement accounts or cash from a rental property. You'll need to make estimated quarterly tax payments in those cases, Steffen said.
"Work with a CPA to do a projection and figure out what your tax liability will be at the end of the year," he said. "In a perfect scenario, you'll have a balance due when you file your return, but not one that's large enough to create a penalty."
Avoid tax arbitrage: If you withhold less in taxes because you have bigger plans with your paycheck, bear in mind that you'll owe Uncle Sam next year. Don't gamble your cash. "Some people do foolish things: 'If I invest the money and make 7 percent this year, and I beat the IRS's penalty, then I'm ahead,'" said Levine.
"If you've deliberately underpaid, the money should go someplace safe because this is a really short time horizon," he said.