What Is a Stipend?
The term stipend refers to a form of compensation that is paid to certain individuals for services rendered, other work, or while they receive training. Stipends are often provided in lieu of or (in some cases) in addition to a regular salary. They are often used to offset certain expenses and generally come in a fixed amount. Stipends are commonly paid to trainees, interns, students, apprentices, and clergy members. Individuals should be aware of the tax implications of stipends, which are considered income but aren't immediately taxed.
Key Takeaways
- A stipend is a form of compensation paid to certain individuals to help cover basic costs while they receive career training.
- Stipends may be offered in lieu of or in addition to a salary.
- Interns, apprentices, fellows, and clergy are common recipients of stipends.
- Most stipends are considered taxable income, which means that recipients may be responsible for their own withholding taxes if they aren't deducted by the issuer.
- The government has specific standards and rules for how stipends can be paid and for what reasons, since they may often fall below the minimum wage.
How Stipends Work
A stipend is often offered to individuals as a fixed sum and is commonly paid to the recipient as a lump sum payment. This type of compensation is sometimes called an allowance and is normally provided on a daily, weekly, or monthly basis. A stipend is usually offered as compensation for training instead of salaries for employment purposes. That being said, it allows people to pursue work that is normally unpaid by helping defray living expenses.
Interns, apprentices, fellows, and clergy are common recipients of stipends. Rather than being paid for their services, they're given stipends to provide financial support while they engage in the service or task at hand. A stipend often includes other benefits, such as higher education, room, and board.
Rules outlined by the Department of Labor (DOL) exist surrounding how stipends can be used by companies and organizations. Stipends cannot be used to hire students to replace existing staff, and the students must be the primary beneficiary of the employment or training—not the company. Also, a stipend may be lower than the minimum wage as long as it's used to pay trainees.
There is no hard-and-fast rule about the amount individuals are paid for stipends. The amount an individual receives often depends on the task they are assigned or the expense that is being offset. For instance, a company may pay a trainee $250 for a week's worth of training or a church may pay a clergy member $1,000 for living expenses.
Most stipends are considered taxable income so you'll have to pay the entire 15.3% withholding tax out of your own pocket. This includes both your portion and the employer's portion.
Special Considerations
If you receive a stipend, there are certain things you must consider. One of the main advantages of this type of compensation is that you get to keep what you earn. That's because people who receive stipends don't have taxes withdrawn to pay for Medicare and Social Security.
But remember, the majority of stipends are considered a form of taxable income. This means recipients need to set aside a portion of their earnings. For the 2024 tax year, the withholding rate for both programs is 15.3%—12.4% for Social Security and 2.9% for Medicare.
Recipients should be careful about how their payments are classified. Students and interns should be classified as such. If the company identifies you as an employee, your stipend may be taxed and you won't receive the full amount. And in this case, you're entitled to receive the minimum wage and any overtime pay, if it applies. On the other hand, employees should ensure they aren't considered trainees. This could lead to complications with their pay.
Not all stipends are considered taxable. For instance, fringe benefits like parking are only taxable after a certain amount. Be sure to consult with a tax consultant if you're unsure about the tax implications of your stipend.
Types of Stipends
As mentioned above, stipends are not hourly-based pay and are often used by employers as a lower-cost option to pay interns or to offset the cost individuals bear while executing certain services. As such, stipends can vary depending on the company or organization that pays them. Some companies pay stipends to help cover housing, food, or travel expenses. Here are just a few of the types of stipends that are offered.
Academic Research Stipends
Stipends are commonly offered to researchers at academic institutions or other related organizations to help them focus on their projects. Much like grants, these stipends may be furnished by third parties who wish to see a particular study or form of research advance further without fiscal distractions that may otherwise hamper the researcher. Foundations and comparable entities might also offer stipends on similar terms to support the work of researchers and the projects they are developing.
Expense-Related Stipends
Stipends might also be offered to cover very specific costs and expenses. For instance, students could receive a stipend that must be used toward the purchase or lease of computers during academic semesters. Alternatively, stipends may be issued to help defer the cost of transportation incurred by the recipient to and from the company for training purposes.
Health Insurance Stipends
Since employers don't have to offer health benefits to interns, some of them may offer their workers extra money by adding it to their paycheck to help them with health insurance costs. Individuals can then use this extra cash to put toward paying for their insurance premiums for coverage that can be purchased either through the health care exchange or directly from private insurers.
Wellness Program Stipends
Health and wellness are now an important part of the work-life balance that many employers promote. So it's only natural that a lot of companies also offer stipends for employees that can be used for a variety of fitness expenses, such as gym memberships, yoga classes, or even personal trainers, as part of a wellness program.
Job Training Stipends
Some companies offer stipends to employees who wish to take additional training and classes that may assist them with their jobs and career development. The employee may enroll and pay for classes or additional training, for which the employer provides a reimbursem*nt.
Real-World Examples of Stipends
Many corporations and organizations offer stipends to workers and other individuals. The following are just a few examples that are found in the real world.
- The National Endowment for the Humanities offers grants in the form of stipends to support individuals who conduct advanced research that may be of interest to the general public or scholars. The organization has given out $5.6 billion in more than 64,000 grants. The types of research projects eligible to receive such stipends may include books, translations, articles, digital publications, or site reports on archeologic digs. In order to receive a stipend like this, the recipient must ensure the project does more than collect data. Analysis and interpretation of the gathered information must be included.
- Health and wellness stipends are growing in popularity. Microsoft (MSFT) offers full-time employees $1,200 per year for wellness-related expenses, such as gym memberships, fitness classes, financial advising, debt management, or massages, for example. The cost of the chosen services is reimbursed to the employee in addition to other healthcare benefits, such as medical, dental, or vision care.
- Professional development is another popular employer-sponsored stipend. Apple (AAPL) reimburses employees for formal education expenses related to furthering their career at Apple, including tuition.
How Is a Stipend Different From a Salary?
A salary is compensation for work performed and is a set amount, typically per year. A stipend, on the other hand, is not considered compensation for work, but rather monetary support for a variety of possible factors, such as expenses incurred during traveling or during a training period, or to cover certain living expenses. Stipends are also typically lower in amount. As such, they are often lower than minimum wage and are not regulated by the state but provided at the discretion of the employer.
Is a Stipend Considered Income?
Stipends are not considered as wages so employers will not withhold income tax on any stipends made to employees. However, stipends are often considered income so you as an individual will have to calculate and pay taxes on any stipends received; this includes Social Security and Medicare. It is important to check with your employer on the tax implications regarding any stipends.
How Often Are Stipends Paid to an Employee?
How often stipends are paid out to an employee will vary on the institution and the circ*mstances. Stipends can be paid out weekly, monthly, or annually, Most often they will not be paid out annually as they are considered a form of support and the individual may need that monetary amount throughout the year. It is common that stipends are paid out as often as an employee's salary.
