I have heard that one could withhold their tax payents, and instead put that money into an interest bearing savings account. Then pay the taxes due come tax time, and have earned interest on it in the meantime.

Is this true? If so, Would one simply need to change their tax forms to have zero dollars deducted each paycheck?

First of all, you have to meet pretty strict conditions in order to qualify to have nothing withheld from your paycheck. One such condition is having had no tax liability the previous year.

While in theory, you could reduce your withholdings, and save the extra paycheck amount you get as a result, I do not recommend this strategy. There are just way too many moving parts, and the potential for messing up is too great. First of all, you have to make sure that in reducing your withholdings you are not running the risk of an underpayment penalty. (Just reading and understanding these rules takes some doing.) Second, you have to make sure your payroll department gets the new reduced withholdings exactly where you want them -- not necessarily a simple task. Third, you have to be religious about getting that extra paycheck amount into the savings account. Fourth, you have to get the money out of the account and back into your checking account in time to pay the IRS on time.

Weigh up all this time and effort against the extra interest you will earn, and I think you'll realize -- especially in this low interest rate environment -- it just is not worth it. Let's talk again when interest rates go double-digit.