Sponsors (2)
The bill gives workers a modest, inflation‑protected tax exclusion for year‑end bonuses that increases take‑home pay but reduces federal revenue, creates compliance costs for employers, and risks abuse through recharacterizing regular pay as tax‑free bonuses.
Employees (particularly lower- and middle-income workers) can receive up to $2,500 in year-end/holiday bonuses tax-free, increasing their take-home pay.
The $2,500 exclusion is indexed for inflation so its real value is preserved over time for workers who receive eligible bonuses.
Employers must report qualified holiday bonuses on Form W-2, increasing transparency for taxpayers and enabling IRS enforcement of the exclusion.
Employers could reclassify regular pay as 'holiday bonuses,' allowing higher‑income employees to receive tax‑free compensation unless IRS rules strictly limit abuse.
The exclusion reduces taxable wages and slightly lowers federal revenue, which could shift fiscal burdens or reduce funding for government programs.
Employers—especially small businesses—face added administrative burden and compliance costs to track, limit, and separately report qualified bonuses on W-2s.
Based on analysis of 2 sections of legislative text.
Excludes up to $2,500 of employer-paid holiday or end-of-year bonuses from employees' taxable income and requires W‑2 reporting; cap is inflation-indexed.
Official title: To amend the Internal Revenue Code of 1986 to exclude holiday bonuses from gross income, and for other purposes.
Introduced December 18, 2025 by Ryan Mackenzie · Last progress December 18, 2025
Creates a new tax exclusion that lets employers exclude up to $2,500 of a "qualified holiday bonus" from an employee’s gross income. Employers must report the amount on employees’ W-2s and Treasury must issue anti‑abuse rules; the exclusion is indexed for inflation beginning after 2026 and applies to bonuses paid on or after November 1, 2025.