O. Henry does not specify the exact location or time period of "The Gift of the Magi." However, readers might infer that "the city" he mentions is New York City, and that the story is set around the early 1900s, the time when he wrote it. Clues such as the characters' attire, the descriptions of the apartment and the city, and the language used by both the characters and the narrator support this assumption. For example, the Youngs' apartment features an electric buzzer (despite it being broken), yet Della must use gas to heat her curling irons, indicating that the story takes place before electricity became widespread. Additionally, wigs are made from real human hair, and pocket watches are more common than wristwatches.

When the story was first published in 1906, American gender roles were clearly defined. Jim and Della exhibit numerous signs of adhering to these conventional roles: Jim works outside the home while Della takes care of shopping, cooking, and household chores. Jim also provides emotional support, comforting Della during her crying spells. At that time, women did not have the right to vote, although the suffrage movement was already underway.

In the United States, an economic crisis was looming, exacerbated by the significant federal aid required to assist the people of San Francisco, California, following the notorious 1906 earthquake—the worst ever to strike an American city. The earthquake registered 8.3 on the Richter scale, rupturing water and gas mains and sparking a three-day fire that consumed two-thirds of the city. The disaster resulted in 2,500 deaths, left 250,000 people homeless, and caused over $400 million in property damage.

O. Henry did not reference contemporary events in "The Gift of the Magi" or many of his other stories. This might be because his characters were primarily working-class individuals, preoccupied with managing their daily lives and less concerned with international or national events that did not directly and immediately impact them.

Early 1900s: In the majority of married households, the husband is the breadwinner while the wife remains at home. Women make up just one-third of the workforce.

Today: Women constitute 40 percent of the workforce, and dual-income families are the norm.

Early 1900s: Less than half of American families—46 percent—own their homes.

Today: Homeownership has risen to 64 percent among all families.

Early 1900s: The average yearly income is $700, with a typical work week lasting 53 hours.

Today: The average yearly income is $31,000, and the standard work week is 40 hours.