Sponsors (2)
The bill raises take-home pay for bonus recipients and gives employers a tax-favored recruiting tool by excluding up to $2,500 of holiday bonuses from taxable income, while reducing federal revenue and imposing compliance costs and potential reclassification risks for employers.
Employees who receive holiday or year-end bonuses can exclude up to $2,500 of those bonuses from taxable income, increasing their take-home pay.
Employers (including small businesses) can offer holiday or year-end bonuses with a tax-favored benefit, which may help with recruitment and employee retention.
The requirement to report excluded bonuses on Form W-2 increases transparency and supports IRS enforcement of the exclusion.
All taxpayers face reduced federal revenue because the exclusion lowers income subject to tax, which could increase deficits or reduce funding for federal services.
Small employers will face added compliance burdens to track, apply the exclusion (and any inflation indexing), and report bonuses on W-2s, increasing administrative costs.
Employees and taxpayers risk unfairness if employers reclassify ordinary pay as 'qualified holiday bonuses,' creating complexity and potential abuse despite Treasury rulemaking.
Based on analysis of 2 sections of legislative text.
Excludes up to $2,500 (indexed after 2026) of employer-paid holiday bonuses paid in Nov, Dec, or Jan from employees' gross income and requires W‑2 reporting.
Introduced December 18, 2025 by Ryan Mackenzie · Last progress December 18, 2025
Creates a new tax exclusion that lets employers give employees a tax-free “holiday bonus” of up to $2,500 per person per year (amount indexed for inflation after 2026) for payments made in November, December, or January. Employers must report the total qualified holiday bonus on employees’ W‑2 forms and Treasury must issue regulations to prevent abuse. The change applies to bonuses received on or after November 1, 2025.