What Is a Stipend?
A stipend refers to a predetermined amount of money prepaid (or, less often reimbursed) to certain individuals, such as trainees, interns, and students to help offset some of their expenses. Stipends are often provided to people who are ineligible to receive a regular salary in exchange for the duties they perform.
A stipend is generally lower in pay than a salary. However, the recipient is able to gain experience and knowledge in a specific field with some—usually minimal—remuneration.
- A stipend is a nominal sum of money paid to trainees, interns, or students to help pay basic costs while they receive their training.
- While taxes are not deducted from stipends these funds are nonetheless considered taxable income, which means that recipients are responsible to pay their own withholding taxes.
- The government has set 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 normally offered on a daily, weekly, or monthly basis. It is often also called an allowance. Stipends are normally offered as compensation for training instead of 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 U.S. Department of Labor exist surrounding how stipends can be used by companies and organizations. Stipends can not be used to hire students to replace existing staff, and the students are 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 to stipend recipients are relatively low. For instance, interns typically receive anywhere $250 to $500 or more per month. Of course, this isn't a hard-and-fast-rule, as the pay does vary by employer.
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 2020 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.
Stipends are considered taxable income so you'll have to pay the entire 15.3% withholding tax—both your portion and the employer's portion—out of your own pocket.
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. 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.
Stipends are commonly offered to researchers at academic institutions or other organizations in order 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 might 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.
Stipends might also be offered to cover very specific types of costs and expenses. For instance, students could receive a stipend that must be used towards the purchase or lease of computers during academic semesters. Or they may be used to help defer the cost of transportation incurred by the recipient to and from the company for training purposes.
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.
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 may 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.
Some companies offer their employees stipends for those 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 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.