What Is a Stipend?

The term stipend refers to a predetermined amount of money prepaid to certain individuals. Stipends are often provided to people who are ineligible to receive a regular salary in exchange for the duties they perform. This includes trainees, interns, and students. It helps these individuals offset some of their expenses. Stipends are generally lower in pay than salaries. The tradeoff is that the recipient gains experience and knowledge with some—usually minimal—remuneration.

Key Takeaways

  • A stipend is a nominal sum of money paid to trainees, interns, or students to help cover basic costs while they receive career training.
  • Stipends are offered to individuals rather than a salary.
  • Interns, apprentices, fellows, and clergy are common recipients of stipends.
  • Taxes aren't deducted from stipends but they are considered taxable income, which means that recipients must pay their own withholding taxes.
  • 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 a Stipend Works

A stipend is often offered to individuals as a fixed sum rather than an hourly wage or salary. This type of compensation is sometimes called an allowance and is normally provided on a daily, weekly, or monthly basis. Stipends are 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 paid stipends to provide financial support while engaged in the service or task. 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.

Because they're often used to cover expenses, the amounts paid as stipends are relatively low. For instance, interns typically receive anywhere between $250 to $500 or more per month. Of course, this isn't a hard-and-fast rule, as the pay tends to vary by employer.

Stipends Are Taxable

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, stipends are considered a form of taxable income. This means recipients need to set aside a portion of their earnings. For the 2021 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.

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. In fact, 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 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 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

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 Programs

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

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 reimbursement.

Example of a Stipend

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.

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 as 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; 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 circumstances. 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.

Article Sources
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  1. U.S. Department of Labor. "Factsheet #71: Internship Programs Under The Fair Labor Standards Act." Accessed Sept. 6, 2021.

  2. Internal Revenue Service. "Self-Employment Tax." Accessed Sep. 6, 2021.

  3. Internal Revenue Service. "Topic No. 751 Social Security and Medicare Withholding Rates." Accessed Sept. 6, 2021.

  4. National Endowment for the Arts. "Information for First-time Applicants." Accessed Aug. 24, 2021.

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