Getting a bonus check feels like a reward for your hard work—until you see how much disappears into taxes. It’s frustrating to watch a big slice of your well-earned money go straight to the IRS. Many people assume there’s no way around it, but that’s not true. There are smart, legal ways to reduce how much tax you pay on your bonus, letting you keep more of what you earned.

Whether you adjust your withholdings, make strategic contributions, or defer income, a little planning can make a big difference. Let's explore the best ways to protect your bonus.

Understanding How Bonus Checks Are Taxed?

Before finding ways to reduce taxes on your bonus, it’s important to understand how the IRS treats these payments. Bonuses are considered supplemental income, which means they are taxed differently than regular wages. Employers typically withhold a flat 22% for bonuses under $1 million. If your bonus exceeds $1 million, the withholding rate increases to 37%.

Beyond this, your bonus is also subject to Social Security and Medicare taxes. When you file your tax return, your total income—including your bonus—determines your final tax bracket. If your bonus pushes you into a higher tax bracket, you may owe even more.

The good news is that there are legal means of reducing the tax bite. Deferring income, saving to tax-favored accounts, and withholding adjustments can all help reduce the amount of your bonus that is lost to taxes so you can keep more of your earnings.

Legal Strategies to Reduce Taxes on Your Bonus Check

Cutting taxes off your bonus check takes intelligent thinking and optimal financial strategies. Here's how you can legally keep more of your hard-earned money.

Contribute to Tax-Advantaged Accounts

One of the easiest ways to lower taxes on your bonus is to contribute to tax-advantaged accounts. If your employer offers a 401(k) or similar retirement plan, you can put a portion—or all—of your bonus into it. Contributions to traditional retirement accounts are pre-tax, which means you won’t pay income tax on that money until you withdraw it in retirement. This can be a powerful way to reduce your taxable income while also securing your future.

Use Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs)

Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) offer another opportunity to lower your taxable income. If you have a high-deductible health plan, contributing to an HSA lets you save money tax-free for medical expenses. Similarly, FSAs allow you to set aside pre-tax dollars for healthcare costs. By directing some of your bonus into these accounts, you can reduce your tax burden while covering necessary expenses.

Defer Your Bonus to a Future Tax Year

Another option is to defer your bonus if your employer allows it. Some companies give employees the choice to receive their bonus in the following tax year. If you’re already close to moving into a higher tax bracket, postponing your bonus could help you avoid additional taxes. This strategy works best when you expect your income to be lower in the next year.

Adjust Your Withholdings

You can also adjust your withholdings. Since employers automatically withhold a flat 22% from bonuses, that amount may be more than what you actually owe in taxes. If you typically get a refund at tax time, you might be able to lower the withholdings on your bonus by submitting a new W-4 form. This doesn’t reduce your overall tax liability, but it does allow you to take home more of your bonus upfront instead of waiting for a refund.

Make Charitable Donations

For those in a position to do so, charitable donations can also help offset bonus taxes. By donating a portion of your bonus to a qualified charity, you may be able to take a tax deduction that lowers your taxable income. This approach is especially useful for high earners who want to reduce their tax bill while supporting a good cause.

Leverage Stock Options and Equity Compensation

Stock options and equity compensation are another way to minimize taxes on bonuses. If your company offers stock options or restricted stock units (RSUs), you may be able to negotiate how and when you receive them. Proper planning around stock compensation can help you avoid unnecessary tax penalties and maximize your after-tax earnings.

How to Plan Your Bonus Tax Strategy for the Future?

If you regularly receive bonuses, planning can help you minimize tax liabilities and maximize your take-home pay. Keeping track of your total income, expected bonuses, and potential deductions allows you to estimate your tax bill before receiving your bonus. This helps you make informed decisions about deferring income, contributing to tax-advantaged accounts, or adjusting your withholdings to avoid unnecessary tax burdens.

Consulting a tax professional can be beneficial, especially if you receive large or irregular bonuses. A financial advisor or accountant can guide you on the best strategies to lower your taxable income while ensuring compliance with tax laws.

Another crucial step is avoiding the temptation to spend your bonus before accounting for taxes. Many people assume they will receive the full amount, only to be caught off guard when taxes significantly reduce their payout. Setting realistic expectations and budgeting accordingly can prevent financial surprises.

It’s also worth checking if your employer offers different bonus payment options, such as stock options or deferred compensation. Exploring these alternatives can help you choose the most tax-efficient way to receive your earnings.

Conclusion

Losing a big chunk of your bonus to taxes can be disheartening, but you don’t have to accept it without a fight. With smart planning, you can legally reduce your tax burden and keep more of your hard-earned money. Whether it’s contributing to retirement accounts, adjusting withholdings, or deferring income, the right strategy makes a difference. Don’t let taxes take more than necessary—take control of your bonus now, plan, and ensure you’re maximizing every dollar that comes your way.