A buddy of mine tells me he's been claiming more allowances in the first half of the year to preserve a larger chunk of his paycheck to invest. He then reverses the allowances during the second half of the year. The goal is to achieve some kind of tax arbitrage. His rationale is that the amount that stayed in his pocket (but should have gone to payroll taxes at each paycheck) is then gaining a little something to offset the extra payroll taxes he'll have to pay in the second half.

Has anyone ever heard of this? I feel like this is cumbersome, and on top of that, it doesn't seem like you earn enough to offset the transaction costs.

Thoughts?