What Is A Stipend & How Do They Work? | 2022 Guide Inside

A stipend is a payment made to trainees or interns to help cover basic expenses such as housing, food, apprenticeship, etc.

Many people turn down unpaid work such as internship opportunities, volunteer work, religious service, or academic research because there is no regular salary. What they don’t know is that many academic institutions, employers, and religious bodies offer a form of monetary support for those who carry out unpaid work.

This monetary support is called a ‘stipend,’ and it is more than just a few dollars. Depending on the organization, a stipend for doctoral students can be as high as $40,500 a year!

Depending on their purposes, stipends are usually enough to cover basic expenses such as transportation, housing, and food.

In this article, we will discuss what a stipend is, how it works, and how it differs from a salary. We will also go in-depth into the different types of stipends and whether you can expect to pay tax on your stipends.

What Is A Stipend?

A stipend is a fixed amount of money given to you to cover basic expenses such as food, housing, and commuting costs. It is paid to people who don’t receive a regular salary for work done or to support them in carrying out tasks that don’t attract salaries. 

Although they are primarily for unpaid workers like interns and clergy, some employers now pay stipends to regular employees. They do that to offset certain expenses like gym memberships, childcare, and housing costs.

How Does A Stipend Work?

Stipends are usually fixed amounts paid to individuals instead of hourly wages or salaries. It is also called an allowance and can be paid daily, weekly, or monthly. Think of it as financial support offered to those whose work does not qualify for a salary.

Stipends allow interns, apprentices, clergy, and fellows to carry out tasks without needing an extra job to provide for their basic needs. Aside from the financial support, a stipend paying position can include other benefits such as free transportation, accommodation, tuition credit, and other learning opportunities.

Because of their purposes, stipends are generally low amounts. For example, most employers pay interns between $200 to $1000 a month. There is a great degree of variation as there is no set rule on how much an organization should pay as stipends.

But there are a few rules that govern how stipends work. These are:

• Purpose and usage:

The main purpose of stipends is to provide financial assistance and not commensurate compensation for an individual’s work. That is why they are restricted to cover the cost of travel, food, and housing. 

However, stipends can serve other purposes too. Organizations can use stipends to encourage academic research, religious service, or pursuit of career advancement. Schools may pay stipends to support students in purchasing equipment like laptops. Employers can also pay regular stipends to cover gym memberships or health insurance.

• Amount:

Stipend amounts may be lower or equal to the minimum wage. But, it is not a way to get cheap labor. According to the Department of Labor (DOL), companies and organizations can’t use students/interns receiving stipends to replace their existing staff. Furthermore, the training or employment must benefit the student more than the company.

• Negotiations:

While stipends are usually fixed, some organizations might allow you to negotiate your stipend. You can increase your pay if other similar positions receive higher compensation. Or if you can show that your stipend is not sufficient for the purposes specified like food or housing.

Types Of Stipends

There are plenty of roles that offer stipends. But what a stipend is and does vary depending on the organization or company that offers them. 

Some organizations used them as a low-cost option for compensating interns. Others use it to support academic research or encourage volunteers and clergy members. 

Here are the most common types of stipends:

— Job Training

Many companies offer stipends to support employees who wish to pursue career development with additional training and classes. The employee generally has to enroll and pay for the training, after which they get reimbursement from their employer. 

Organizations also provide stipends to apprentices to cover their cost of living so they can focus on their apprenticeship.

— Academic Research

Academic researchers receive stipends from educational institutions and other organizations to help them focus on their projects without the need for a part-time or full-time job. Like grants, these stipends might be sponsored by third parties interested in a particular study or form of research. 

Non-profits also offer stipends to researchers on similar terms. Researchers who wish to receive stipends must show that their project extends beyond collecting and gathering data. They must show that they can provide a viable solution to problems.

— Volunteering

Volunteers generally do not receive any compensation for their services. However, some volunteer organizations may offer stipends to cover travel expenses and accommodation for people who travel for volunteer work.

— Specific Expenses

Stipends can be used to cover specific expenses and costs. For example, some educational institutions provide stipends that only cover equipment like computers during the academic session. 

They can also be used to reimburse transportation or housing costs. Companies also offer stipends designed to cover specified expenses such as childcare and housing.

— Health Insurance

Interns and job trainees generally don’t have access to health benefits. So, they might receive health insurance stipends from employers to cover their health insurance costs. They can use this extra cash to pay their insurance premiums for coverage. 

The stipends can also cover other health-related services such as gym membership.

— Church Stipends

Religious organizations offer stipends to clergy members and workers for unpaid duties relating to the church. This stipend allows the clergy and priests to perform their duties without the distraction of a second job to cover their living expenses.

— Wellness Programs

Many employers promote health and wellness as part of the work-life balance. That is why they offer stipends to both regular employees and interns that can be used for various wellness programs. 

This stipend can be used to pay for yoga classes, gym memberships, or even the cost of hiring personal trainers.

How Much Are Stipends?

There is no wage-related regulation that determines how much a stipend should be. As long as the stipend isn’t construed as fair compensation for work done, an organization can pay any amount they deem fit. That is why there is so much variation in the amount of money offered as stipends by most companies.

The exact amount depends on the organization paying it and the purpose of the stipends. A stipend designed to cover housing expenses can be up to $1000 a month for interns. Researchers and doctorate students may qualify for an annual stipend of $25,000 or more.

Organizations and companies that provide stipends to cover certain expenses, such as wellness programs, may limit the specific cost of the service or program when it is rendered. For instance, if a gym membership costs $150, the employee may receive a monthly stipend of $100 for the membership cost.

Many companies take cues from the amount of money offered as stipends by other organizations. Suppose your organization provides an amount that is significantly lower than other organizations. In that case, you can discuss with your employer to increase your stipends. 

However, keep in mind that not all organizations are open to this. Volunteer organizations, religious bodies, and education institutions usually have a fixed sum of money allocated for stipends in their yearly budget.

Is A Stipend Considered Taxable Income?

Yes. Most stipends are considered taxable income. Since they are not counted as wages, your employer won’t withhold your Social Security and Medicare taxes. This means you must pay the 12.4% withholding rate for Social Security and 2.9% withholding rate for Medicare.

But, there are cases where a stipend doesn’t fall under the taxable income category. For instance, stipends paid to interns or associates in accounting, medicine, or law may or may not be taxable. This depends on the purpose of the payment.

This ambiguity exists because the Income-tax Act makes no mention of stipends. The only relevant section is Section 10(16), which states the non-taxability of “scholarship granted to meet the cost of education.”

If the stipend exists to help students cover educational costs, it doesn’t qualify as a taxable income. This puts the stipend in the same category as grants.

If you are an employer providing stipends, you should check with tax experts or accounting teams for clarification. You can also study the IRS Publication 15-B to understand the tax implications in paying stipends.

People who receive stipends should be careful about how they are considered by their employees. If your employer identifies you as an employee, your stipend will be fully taxed. This also means you deserve to earn the minimum wage and other work benefits such as overtime pay.

If you receive stipends but do not classify as an employee, you will need to record your stipends on your tax return at the end of the year. The section for stipends can be referred to as “non-qualified fellowship,” “taxable scholarship,” “taxable grant scholarship,” or another similar wording. You should have a local tax expert advise you on what forms to fill out and how to fill them correctly.

 

What Is The Difference Between A Stipend And A Salary?

A salary is a specified amount used to compensate people for work or services performed. It is usually commensurate with work and position. Salaries are typically open to review after a year or a few years based on performance and responsibility.  

A stipend is a form of monetary support for people who perform various work or services. It is not compensation but financial assistance provided to the receiver of the stipends. Stipends are typically fixed regardless of work output or responsibility.

Here are some key differences between a stipend and a salary:

Work hours: Stipends are a fixed sum of money paid regardless of the hours worked. Salary is calculated based on the number of hours worked, along with other factors.

Tax: Stipend payments are not taxable by employers. For salaries, employers will withhold social security taxes based on the tax withholding rate and pay the rest to the employee.

Increase: Stipends are fixed amounts. An organization can pay the same amount of money as stipends for years. On the other hand, salaries provide an opportunity for an increase based on work output and increased responsibility.

Minimum wage requirements: Stipends are not subject to any wage requirements. Organizations can pay any amount they like. On the other hand, salaries must be equal to or higher than the minimum age.

Benefits: Although a salary position offers higher pay, certain benefits are attached to a stipend paying offer. This includes academic or job experience, which can be a tremendous advantage when entering the workforce. So, those with large medical expenses might prefer a salary position and the health care benefits attached.

How Often Do Employees Receive Stipends?

Employees receive stipends weekly, biweekly, bimonthly, or monthly. Although stipends are calculated annually, it is rare for stipends to be paid annually. This is because they are considered financial support, and recipients might need that amount to handle expenses throughout the year. In most cases, employers pay stipends with the same frequency as they pay salaries.

There are instances where the stipends might be made as a one-time payment or irregularly. For example, volunteers who travel for volunteer work may receive a one-time stipend to cover travel and boarding costs. 

Students may also receive a one-time payment or a semester-basis to cover specific costs such as purchasing or leasing a computer for study.

It is common for regular employees to receive a stipend when they receive their salary. The payment of stipends for salary positions depends on the company’s goals and method of incentivizing employees.

In the past, stipends are paid to workers without regular pay or whose work didn’t meet the minimum wage requirement. This category includes:

• Researchers
• Interns
• Clergy Members
• Graduate Students
• Graduate Assistants
• Apprentices

While these roles are still the primary recipients of stipends, employers now offer stipends to regular employees. They serve as an incentive for employees.

The Bottom Line

A stipend is a form of financial support to help individuals offset the cost of living. They can be paid to trainees, interns, or apprentices to cover their living expenses while they learn. Volunteers and clergy members also receive stipends to focus on their service.

A position that pays stipends can also come with additional perks like food, accommodation, and learning opportunities. You should consider all of these before you decide whether to accept the offer or not.

Frequently Asked Questions

What is an example of a stipend?

Facebook is a notable example of a company that provides stipends to support interns. Facebook provides a $1000 housing stipend for Interns who work at their Menlo Park HQ. They also offer a $720 stipend annually to cover health club membership for employees. 

Those with childcare needs can receive up to $3,000 annually as a stipend to cover life insurance, relocation assistance, health, dental, and vision insurance, disability income protection, and other benefits.

Is a stipend free money?

No! A stipend is a form of financial support for people who are studying, getting on-the-job training, performing unpaid duties or services. It is a way to encourage individuals to pursue their activities or pursue education/training without needing another job.

The common way to earn a stipend is to become an intern, trainee, or apprentice at an organization. You may also earn stipends when joining a volunteer service or a religious body.

What benefits does a stipend provide?

The benefits depend on the purpose of the stipend and the organization paying it. Generally, it allows individuals to get on-the-job training without having formal employment to cover living expenses. The stipends allow them to offset that cost of living while being focused on the training.

Stipends can also be used to incentivize employees and support those who give up their time and effort for volunteering work or religious duties.

What are some disadvantages to being paid a stipend?

A stipend paying position comes with certain disadvantages:

1. You might be paid far less than the minimum wage.
2. You are not entitled to other benefits such as annual increments and overtime pay.
3. You might be unable to work elsewhere while you intern at the organization.