There is a disqualifier buried in the "No Tax on Tips" rules that has nothing to do with the tip, the customer, or the worker's job. Under section 224(d)(2), a payment is not a qualified tip if it was received in the course of a specified service trade or business — an "SSTB," borrowed wholesale from the section 199A pass-through rules. And for employees, the test does not look at the employee at all. It looks at the employer.
Two things are true about this rule right now, and most short summaries only carry one of them. It is in the statute and has been since July 4, 2025. And the IRS is not currently enforcing it against anyone in a listed tipped occupation, under a transition period announced in Notice 2025-69 that the April 2026 final regulations left running. Knowing when that period ends is the whole practical question, and the answer is not the one most people assume.
Section 224(d)(2) sets out three requirements an amount must satisfy before it can be a qualified tip. The second is that the amount:
"Is not received in the course of a trade or business that is a specified service trade or business as defined in section 199A(d)(2) of the Code" Section 224(d)(2), as summarised in the preamble to TD 10044, 91 FR 19026
Then comes the attribution rule that makes this an employer problem rather than a worker problem:
"…for purposes of determining whether amounts are received in the course of a trade or business that is a specified service trade or business as defined in section 199A(d)(2), in the case of an individual receiving tips in the trade or business of performing services as an employee, such individual is treated as receiving tips in the course of a trade or business which is a specified service trade or business if the trade or business of the employer is a specified service trade or business." Section 224(d)(2), as summarised in the preamble to TD 10044
Read that carefully. An employee in a perfectly listed tipped occupation, receiving a perfectly voluntary tip from a customer, reported perfectly on the W-2, is disqualified if their employer's trade or business is an SSTB. The proposed regulations had spelled out both consequences of this: the rule would apply without regard to whether an owner of the business can actually claim a section 199A deduction, and it would apply even if the employee is in an occupation on Treasury's list.
Section 199A(d)(2) is elaborated in 26 CFR § 1.199A-5(b)(1), which names thirteen categories:
| Listed SSTB fields under § 1.199A-5(b)(1) |
|---|
| Health · Law · Accounting · Actuarial science · Performing arts · Consulting · Athletics · Financial services · Brokerage services · Investing and investment management · Trading · Dealing in securities, partnership interests, or commodities · Any trade or business where the principal asset is the reputation or skill of one or more of its employees or owners |
Engineering and architecture are conspicuously absent — section 199A(d)(2) reaches the fields described in section 1202(e)(3)(A) but applies that list "without regard to the words 'engineering, architecture'."
The last category sounds like a catch-all and is not. Section 1.199A-5(b)(2)(xiv) defines "reputation or skill" narrowly, as a trade or business consisting of any combination of:
This is the paragraph that matters most to the tipped occupations Treasury added for online work — digital content creators and streamers, whose income can mix tips from viewers with endorsement and appearance income. Being skilled or well-known does not make a business an SSTB; the three listed revenue streams do.
An employee generally has no way to answer the question the statute asks. They do not know how their employer's business is characterised for section 199A purposes, and in many cases neither does the employer — a small business with no pass-through deduction at stake has never had to make the determination. Treasury said exactly this in Notice 2025-69:
"…it may be particularly difficult for employees to determine whether their tips were received in the course of a specified service trade or business, since section 224(d)(2) provides that this determination turns on whether the trade or business of their employer in the course of which they receive tips is a specified service trade or business. … in order to implement such information reporting, employers with employees who receive tips will have to make a determination as to whether their trade or business in the course of which an employee receives tips is a specified service trade or business, and many of these employers, a significant number of which are small businesses, have not previously had to make such a determination." Notice 2025-69, § III
The final regulations published April 13, 2026 (TD 10044) finalised the occupation list and the definition of a qualified tip — and deliberately did not finalise this. The preamble:
"The final regulations do not address the specified service trade or business exclusion under section 224, but subsection (g) of § 1.224-1 is reserved for guidance on this exclusion." TD 10044 preamble, § 6 "Specified Service Trade or Business Exclusion"
And in the regulation text itself, between the SSN rules in (f) and the occupation table in (h), there is a single line: (g) [Reserved].
Commenters had asked for a great deal here — examples across employment and self-employment scenarios, recordkeeping guidance, treatment of hotel and lodging, an argument that barbering and other personal appearance services should be carved out, objective criteria for "reputation or skill," definitions of "appearance at an event" and "well known," and a de minimis safe harbour so that an occasional demonstration or media moment while working for a non-SSTB employer would not trigger classification. None of it was answered. The paragraph is empty.
Because the rule was unworkable without guidance, Notice 2025-69 announced a transition period. This is the operative sentence, and the date trigger inside it is the point of this page:
"Accordingly, in the interest of sound tax administration, there will be a transition period for purposes of IRS enforcement and administration with regard to the specified service trade or business requirement. Specifically, until January 1 of the first calendar year following the issuance of final regulations regarding the determination of whether a trade or business is a specified service trade or business for purposes of section 224 and associated employer information reporting, the IRS will treat the employee as having received tips in the course of a trade or business that is not a specified service trade or business if the employee is in an occupation that customarily and regularly received tips on or before December 31, 2024, as provided by the Secretary. The Treasury Department and the IRS intend to issue proposed regulations and solicit public comment on these issues before publishing final regulations." Notice 2025-69, § III.C.1
The Notice extends the same relief to non-employees a few paragraphs later: "the transition relief described above with regard to whether employee tips were received in connection with a specified service trade or business will also apply to non-employees." The TD 10044 preamble describes it the same way — as applying to "taxpayers (both employees and self-employed individuals)."
Here is the misreading worth guarding against. "Final regulations were published in April 2026, so the transition period ends January 1, 2027." That does not follow from the text.
The trigger is not any final regulations under section 224. It is "final regulations regarding the determination of whether a trade or business is a specified service trade or business for purposes of section 224 and associated employer information reporting." TD 10044 is, by its own preamble, not that — it reserved the paragraph and said further guidance is needed. Treasury also said it intends to issue proposed regulations and take public comment before publishing final ones, which is a multi-step process, not a filing.
Status as of August 26, 2026 [Verified where marked]. A full-text search of the Federal Register for documents published on or after April 14, 2026 containing both "specified service trade or business" and "section 224" returns zero results [Verified — Federal Register API, run August 26, 2026]. On that basis we are not aware of proposed SSTB regulations under section 224 having been issued [Inference — absence of a Federal Register match is strong but not conclusive evidence; guidance can also arrive as a notice or revenue procedure]. If no final SSTB regulations issue during calendar 2026, the earliest the transition period could end is January 1 of the year after they do. Check the current position before relying on this; it is a status statement with a date on it, not a prediction.
The transition period is narrower than "the SSTB rule doesn't apply." Four limits are worth stating plainly:
| It does | It does not |
|---|---|
| Provide a transition period "for purposes of IRS enforcement and administration" | Repeal or amend section 224(d)(2). The statutory requirement is unchanged. |
| Apply where "the employee is in an occupation that customarily and regularly received tips on or before December 31, 2024, as provided by the Secretary" | Apply to someone outside a listed occupation — the relief is conditioned on being in one, so it does not rescue an occupation failure. |
| Extend to non-employees on the same terms | Relieve the separate section 224(c) limitation for non-employees (below), or any other requirement — the cap, the MAGI phase-out, the SSN rule, the joint-filing rule, the reporting rule. |
| Reduce a determination burden nobody could discharge | Excuse recordkeeping. Notice 2025-69 footnotes that taxpayers "must maintain adequate books and records to substantiate both their eligibility for and the amount of any deduction claimed," citing section 6001 and Treas. Reg. § 1.6001-1. |
If you receive tips as a contractor rather than an employee — reported on a Form 1099-NEC, 1099-MISC or 1099-K — there is an additional limit that has nothing to do with the SSTB rule. Under section 224(c), qualified tips received in the course of a trade or business other than performing services as an employee are taken into account only to the extent that gross income from that trade or business for the year (including those qualified tips) exceeds the sum of the deductions allocable to it. In plain terms: the tips deduction cannot exceed the net income of the business the tips came from, computed before this deduction. A business running at a loss produces no deduction under section 224 no matter how large the tips were.
None of this touches self-employment tax. Section 224 is an income tax deduction; tips remain earned income for Social Security and Medicare purposes.
One technical footnote, labelled as our reading. Section 1.199A-5(a)(1) states that "[t]he provisions of this section apply solely for purposes of section 199A." A narrower scope clause at § 1.199A-5(b)(2)(i)(A) adds that the rules of that paragraph "apply solely for purposes of section 199A and therefore may not be taken into account for purposes of applying any provision of law or regulation other than section 199A and the regulations thereunder, except to the extent such provision expressly refers to section 199A(d) or this section." Section 224(d)(2) does expressly refer to section 199A(d)(2). [Inference — on that textual basis the section 199A definitional machinery appears available for section 224 purposes; Treasury nonetheless reserved § 1.224-1(g) and said additional guidance is needed, so this is not a settled answer and should not be treated as one.]
What this page is not. It is not a determination of whether any particular business is an SSTB — that is a facts-and-circumstances question under section 199A that this page cannot answer for you. It is not a guide to the section 199A deduction itself. And it is deliberately not a prediction of when guidance will arrive.
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