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What Are Stipends And How Do They Work?

By Caitlin Mazur
Aug. 16, 2022

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Stipends are payments made to individuals who are ineligible to receive a regular salary for one reason or another. In this article, we’ll go over exactly what a stipend is, who usually receives one, and the key differences between a stipend and a salary.

Key Takeaways:

  • A stipend is a form of income that covers expenses for people performing unpaid work.

  • A stipend is paid at a fixed rate on a fixed schedule and is not associated with the hours you work or any metrics you achieve.

  • Stipends are common for internships, fellowships, researchers, and expense programs.

  • Typically stipends are for jobs focused on training and learning that benefit the recipient rather than the employer.

  • There are no Social Security or Medicare taxes on stipend payments, but they must be included as a part of total income when filing taxes.

What Are Stipends And How Do They Work?

What Is a Stipend?

A stipend is a fixed amount of money provided to people pursuing unpaid work to help cover financial support for things such as housing and food. It’s important to note that stipends are typically tied to internships, apprenticeships, or academic endeavors and make sense for individuals looking to enter these types of fields.

Stipends differ significantly from hourly wages. If you receive a stipend, you may be exempt from partial or fully paid employment. However, if you are entering a job where you are ineligible to receive a regular salary, a stipend could be a perfect fit for you. Stipends can work for researchers, postdoctoral students, graduate students, clergy, interns, and apprentices.

Typically, to be eligible to receive a stipend, your job must be focused on training and learning. The training must benefit the recipient rather than the employer for which you are working. There are fewer things to consider on an hourly wage, and your compensation is yours to control.

How Is a Stipend Different From a Salary?

Stipends are different from salaries in several ways:

  • Not every job is eligible for stipends. A job must focus on training, not employment, in order to receive a stipend. The training has to be mostly for your sake rather than the employers. A worker who receives a stipend cannot displace regular employees. Upon agreeing to a stipend, both you and your employer must agree that you are not entitled to compensation for time spent training.

  • Stipends have no minimum wage. Stipend payments are completely at the discretion of the employer and no laws dictate a minimum stipend. This means you might effectively work for below minimum wage.

  • Stipends are not considered wages. You will not pay Social Security or Medicare taxes on stipend payments, but you will need to include them in your total income when you file your taxes. Because your employer isn’t withholding income taxes as they pay you your stipend, it’s important to set aside at least 15.3% of your stipend for tax season.

How Do Stipends Work?

A stipend is paid at a fixed rate on a fixed schedule and is not associated with the hours you work or any metrics you achieve. Stipends are an alternative form of compensation for employees that benefit more from the training experience than the payment they receive.

Stipends allow people like fellows, interns, and apprentices to have enough money to support themselves while they’re engaged in this period of training. They’re also common for clergy, who don’t have salaried contracts and aren’t paid hourly.

Stipends can’t be used to replace existing staff, as that would be seen as primarily benefiting the company rather than the stipend recipients, which breaks the letter and spirit of the law.

Because they are only meant to cover basic living expenses, stipends are typically far below minimum wage. For recipients, the expectation is that the experience picked up with the company or institution will benefit their future, so they’re willing to defer the immediate gratification of a larger paycheck.

You’ll also have to pay both the employer’s share and your share of income tax on all stipend payments when you file your taxes, which adds up to a total of 15.3%.

Negotiating Stipends

In some cases, stipends can be increased or otherwise negotiated. If you have this opportunity, you should consider the follow factors:

  • Research. Research what people in your position normally receive for either income or stipends. Much like in negotiating a salary, you want to make it clear you deserve fair compensation.

  • Leverage. It can help if you have other potential offers lined up. For example, you may take on a different internship that pays a higher stipend, however you like your current internship enough to give them the opportunity to match.

  • Expansion. If more income is not available, see if you can expand your stipend to cover other areas of expenses, such as food or travel.

  • Cost of Living. Figure out what your cost of living is and decide whether your stipend adequately covers it.

Unfortunately you won’t always have the chance to negotiate stipends, and even when you do, your organization may be limited in what they can offer. Still, it is important to make the most of your stipend and get the best deal for yourself by being prepared.

Common Types of Stipends

Here’s a breakdown of the different situations where stipends are common:

  • Internships. Stipends are very common among interns who are receiving real on-the-job training. Interns are typically current college students or recent graduates who are beginning to have regular expenses. While companies can’t justify hiring these novices at normal market rates, they can offer them a stipend along with a resume boost and a networking win.

  • Fellowships. Fellowships are typically given at the post-graduate level to the top echelon of the student body. These students may be performing research or simply in school, but the goal is to the same: offset the financial burdens of a talented young individual so they’re free to explore their field of study.

  • Research. Like internships, many research assistant positions are filled by current students and recent graduates. While you’ll do all the grunt work and get paid less than minimum wage, these roles do translate into more lucrative scientific positions down the line. The stipend is a nice perk while you’re going through the grind.

  • Expense programs. Stipend policies exist for everything from transportation to technology. For example, you might get a $100 monthly subway stipend if you live in a big city or your company might give you a $1,000/year stipend for a laptop.

    It’s a nice gesture from a company, but do remember that you will still bear the tax burden for these gifts (meaning you’d still owe $153 for that $1,000 laptop).

  • Employee fitness programs. Some companies like to encourage health and wellness, partly because it’s in the employees’ best interest and partly because it potentially saves the company health care costs. In any case, monthly stipends for a gym membership or other wellness/fitness programs are a somewhat common company perk.

  • Clergy. Not all priests are supported by stipends, but it’s quite common. For example, in the Catholic Church, a priest will be paid a stipend for each Mass they perform. They might also receive a stipend for housing, transportation, and other major expenses.

Stipend FAQ

  1. Is a stipend considered income?

  2. Yes, a stipend is considered income.You do not pay Medicare or Social Security tax on stipend payments, and you do not pay income tax upon receiving your stipend payment. However, when you file your taxes, you will owe 15.3% of all stipend money, because you’re covering both you and your employer’s income tax burden.

  3. How do employers report stipends?

  4. Employers can report stipends on W-2 or 1099-MISC forms. It is up to the employee to determine whether they were paid as an employee or independent contractor.

  5. How often are stipends paid?

  6. Stipends are most commonly paid out weekly or monthly. They are seen as a form of continuous financial support. Some stipends might be for one day’s tasks, while others might be granted for the whole year. The structure of stipend payments varies from institution to institution.

  7. How much are stipends?

  8. The size of a stipend payment depends greatly on the situation. An intern might receive a $500 stipend each month, while a priest might get a $100 stipend for a Mass.

    For most job training, you can expect well below minimum wage — somewhere in the $5/hour range is normal. An academic stipend might be substantially more, as it has to cover the student’s living expenses, but it still won’t be a large amount (between $15,000-$30,000 annually).

    For expense-related stipend payments, you can expect the smallest numbers. Something like a $50-$100 monthly gas or gym membership is about par for the course.

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Caitlin Mazur

Caitlin Mazur is a freelance writer at Zippia. Caitlin is passionate about helping Zippia’s readers land the jobs of their dreams by offering content that discusses job-seeking advice based on experience and extensive research. Caitlin holds a degree in English from Saint Joseph’s University in Philadelphia, PA.

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