What Is a Stipend?

What Is a Stipend?

Let me explain what a stipend is: it's a fixed amount of money given to support you during training or employment in roles that might not otherwise pay. You often see these going to interns, trainees, students, and clergy to help with living costs or training expenses, but remember, they come with tax duties. If you grasp how stipends work and their implications, you'll manage your finances better.

Understanding the Mechanics of Stipends

You get a stipend as a fixed sum, often paid out as a lump sum. This could be on a daily, weekly, or monthly basis, and it's basically an allowance. It's offered for training rather than as a salary for regular employment, which means it lets you take on unpaid work by covering some living expenses.

People like interns, apprentices, fellows, and clergy are typical recipients. Instead of payment for services, they receive this financial support while doing the task. Stipends might include extras like education, room, and board.

The U.S. Department of Labor has rules on this: companies can't use stipends to replace staff with students, and the students must benefit most from the training, not the company. Stipends can be below minimum wage if they're for trainees.

For W-2 employees, stipends can supplement a salary but not replace it. The amount depends on the task or expense—for example, a company might give $450 for a week's training, or a church $1,000 for living costs.

Here's something important: most stipends count as taxable income, so you'll pay the full 15.3% withholding tax yourself, covering both your share and what would be the employer's.

Important Factors to Consider With Stipends

If you're getting a stipend, think about this: one big plus is you might keep more of what you earn based on your status, without automatic deductions for Medicare and Social Security.

But most stipends are taxable, so set aside part of it. For 2024, the rate is 15.3%—12.4% for Social Security and 2.9% for Medicare, with half usually from the employer.

Watch how your payments are classified. If you're a student or intern, stay that way; if labeled an employee, taxes might eat into your stipend, but you'd get minimum wage and overtime rights. Employees, don't let yourself be called trainees—that could mess with your pay.

Quick fact: not all stipends are taxable; things like parking benefits are only taxed after a point. Check with a tax advisor if unsure.

Exploring Different Types of Stipends

Stipends aren't based on hours and are a cheaper way for employers to pay interns or cover service costs. They vary by organization and might cover housing, food, or travel. Let me outline some types.

For academic research, stipends go to researchers at institutions to focus on projects, often like grants from third parties or foundations to advance studies without financial worries.

Expense-related stipends cover specific costs, like buying a computer for school or travel to training.

Health insurance stipends add extra to your paycheck for premiums, since interns might not get benefits; you can buy coverage through exchanges or privately.

Wellness program stipends support fitness, like gym memberships or classes, as part of work-life balance.

Job training stipends reimburse you for classes that help your career; you pay upfront, and the employer covers it.

Real-World Stipend Examples

Many places offer stipends. The National Endowment for the Humanities gives grants as stipends for research interesting to the public or scholars, with $5.6 billion in over 64,000 grants for books, articles, or digs— but you must analyze data, not just collect it.

Health and wellness stipends are big now; Microsoft gives full-time employees $1,200 yearly for things like gyms, classes, advising, or massages, reimbursed on top of other benefits.

For professional development, Apple reimburses tuition for education that advances your career there.

How Is a Stipend Different From a Salary?

A salary is fixed pay for work, usually yearly. A stipend isn't for work but supports expenses like travel or training, and it's often lower than minimum wage, at the employer's discretion, not regulated like wages.

Is a Stipend Considered Income?

Stipends aren't wages, so no tax withholding by employers, but they count as income. You calculate and pay taxes, including Social Security and Medicare. Ask your employer about implications.

How Often Are Stipends Paid to an Employee?

It varies by situation—weekly, monthly, or annually, but usually not yearly since it's support needed ongoing. Often, it's as frequent as a salary.

The Bottom Line

Stipends provide financial support for training or unpaid work, like for interns or students, covering living expenses. They're fixed, often below minimum wage, and can add to salaries for costs like housing or insurance. They offer relief, but watch the taxes since most are income. Know the structures to make smart financial choices and get the most out of them.