If you received a federal income tax refund this year, it may mean that you are having too much tax withheld from your paycheck.  In effect, you are giving the government an interest-free loan.  However, you do have the option to reduce your withholding and keep the cash.

By filing a Form W-4 with your employer, you can adjust the amount withheld from your paycheck.  The form asks you to claim allowances based on marital status, number of dependents or other factors that can affect your taxable income such as the child tax credit, education tax credit, or retirement savings credit.  The number of allowances claimed determines what amount of federal income tax is withheld.  For every allowance claimed, the amount of tax withheld decreases.

Also be sure to consider the tests to determine whether sufficient tax is being withheld from your wages.  If you do not pay enough tax, the IRS will assess an underpayment penalty.  Generally,  your  federal income tax withholding plus any estimated tax payments should equal the lesser of 90% of your current tax liability or 100% of the tax shown on your prior year tax return if your adjusted gross income (AGI) was below $150,000 for married filing joint taxpayers (or 110% if higher than $150,000).  If you owe less than $1,000, there is no penalty. 

Your employer should have Form W-4 on hand or you can find it at www.irs.gov.