What Is A Stipend And How Does It Work?

As an alternative to a salary or hourly wage, some organizations offer what’s known as a stipend. A stipend is a fixed dollar amount paid as an incentive to cover work-related and living expenses. It’s common for interns, researchers and volunteers to receive stipends. Some companies offer employees stipends in addition to regular pay for certain expenses.

Let’s take a closer look at the purpose of stipends, how they work and why some organizations choose this option.

Stipend Definition

A stipend is a fixed amount of money an organization pays people to perform a task or set of tasks over a period of time. A stipend can also be a reimbursement for work-related expenses, like costs to travel to a work event. In addition to salaries, some employers offer stipends as fringe benefits.  

Interns, graduate students, public servants and trainees are some common recipients of stipends. For example, say a financial services firm hires an intern to perform record-keeping and basic accounting tasks. Instead of paying a salary or hourly wage, the firm pays the intern a predetermined stipend of $3,000.

Stipend Vs. Salary

One difference between a stipend and salary is that a stipend can be lower. When organizations pay a stipend, they don’t have to pay minimum wage. The organization providing the stipend usually also won’t withhold taxes on it. The stipend recipient is generally responsible for setting funds aside for income taxes.

You may receive one lump sum, but daily, weekly and monthly stipends are also common. A salary is usually paid out on a weekly or biweekly basis.

Stipends also aren’t considered wages, though they can be considered an addition to a salary. A stipend is meant to cover expenses you incur as you perform a specific job for an organization over a set period.

Stipends are also sometimes used to reward employees for taking on extra work. For instance, a public high school teacher might receive a stipend for coaching the football team or directing the school play.

How Do Stipends Work?

As briefly mentioned, organizations pay stipends to provide recipients with financial support. If you’re the recipient, you can use that stipend to pay for rent, meals, transportation or something else.

For example, colleges might pay a stipend to a graduate assistant for the work they do during a semester. The college might provide the stipend to help pay for meals or transportation to and from campus.

Companies, schools and other organizations must follow a key rule when paying stipends. The U.S. Department of Labor prohibits paying a stipend if the work an individual does isn’t considered educational training. Organizations also can’t pay a stipend if they gain an advantage from the work performed.

In such cases, organizations must treat the individual as a regular employee. This means they must pay them at least minimum wage.

What Are The Types Of Stipends?

Let’s take a look at the different types of stipends you might come across.

• Academic research: Some academic institutions offer research stipends. The stipend is meant to support the researcher and help advance their studies. To get the stipend, they may need to explain their project’s purpose or provide proof of how they’ll use the funds.
• Specific expenses: Some employers may require you to do tasks beyond your job description. For example, if your employer asks you to attend a conference, they may give you a stipend for travel, food, conference tickets and other expenses.
• Health insurance: Your employer may offer a health insurance stipend to help you with your insurance costs.
• Wellness programs: You may receive a wellness stipend from your employer to pay for gym memberships or workout equipment.
• Job training: Your employer may pay for you to take a professional career development training class if it’s meant to help with your job.
• Internships: Depending on your internship, you may receive a stipend to pay for food and housing. How much you get may depend on housing costs in the area. You may also get a stipend to buy equipment like a laptop to perform your internship duties.

What Should You Consider Before Accepting A Position With A Stipend?

A position with stipend pay might make sense if you want to learn a new skill or gain experience you can use to land a salaried position.

Stipend-paying positions come with drawbacks, though. You’ll typically make less money with a stipend than with a regular salary. The stipend also likely won’t grow, and you won’t get a raise because the amount you’re getting paid isalready set. If you’re trying to save for a particular goal, a salaried position may be more helpful.

Stipend Pay FAQs

Below are a few commonly asked questions about stipends.

What can I use a stipend for?

A stipend can be used for almost any purpose as long as it’s to assist with living or program-related expenses. In some cases, the stipend is used to buy materials, so you won’t see the money itself. For example, if you get a stipend for a research project, your school may buy your books and have them delivered to you.

Are stipends taxable?

In most cases, the Internal Revenue Service (IRS) considers a stipend to be taxable income. This means you may have to pay federal and possibly state income taxes on it. However, a stipend doesn’t count as a wage, so you likely don’t need to pay Social Security or Medicare taxes. Talk to your employer and a tax professional to confirm what you will owe.

Also, any part of a stipend used for educational expenses isn’t taxable. Let’s say you get a $4,000 stipend to serve as a teaching assistant at your college. If you use $2,000 for tuition and school supplies, you only have to pay taxes on the remaining $2,000.

Who qualifies for a stipend?

A stipend is for those who meet certain criteria as defined by the U.S. Department of Labor. Generally, you can legally qualify for a stipend if you’re undergoing training, not receiving wages and not guaranteed a job after your training.

How often are stipends paid? 

Organizations determine how often a stipend is paid. As mentioned before, companies may pay stipends on a weekly, biweekly or monthly basis. At times, companies may pay stipends out annually. If you do a summer internship, you might get the stipend at the end of the summer when you complete the internship.

How much are stipends?

Stipend payments are usually low, but they can vary by organization and expenses incurred. Organizations consider a few factors to determine stipend amounts. These may include the cost of living in the area and the expenses related to the task.

The Bottom Line

A stipend is a fixed sum of money paid to people as they gain knowledge, training and experience. Stipends are beneficial for both the organization and the one receiving the stipend. Organizations don’t have to pay a wage, and a stipend helps recipients cover basic costs.

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