Wondering what a stipend is? It’s a fixed amount of money designed to offset expenses or provide financial support when you’re performing a service or contributing to a project. For instance, some gigs when you are in college may pay a stipend in one lump sum or it might be doled out in a series of smaller payments.
As you’re looking through employment opportunities, you may come across certain positions or experiences that don’t offer a salary but do offer a stipend. Stipends are also common in academia, where a stipend may be offered to grad students to TA classes, assist with research, or conduct research projects on their own.
Here, you’ll learn how a stipend works, whether you can negotiate the amount of a stipend, and how accepting this type of payment may impact your taxes.
How Does a Stipend Differ From a Salary?
A stipend is a fixed sum of money that may be used by an organization to incentivize employees, interns, researchers, teachers, and volunteers. It’s usually meant to help offset expenses for a specified period of time, such as one year or one semester.
Typically, stipends are used in internships or apprentice situations, where the recipient of the stipend is receiving training that benefits them more than an employer.
However, some employers may offer stipends to their employees as one-off payments to help offset work-related expenses, such as travel/commuting, meals, home office expenses, cell phone, professional training, or education.
A salary, on the other hand, is an annual amount agreed upon between a company and an employee that is paid out in regular increments, either monthly, bi-monthly, bi-weekly, or weekly.
A salary may also include benefits such as vacation, insurance, and other benefits within the overall compensation package.
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Who Receives a Stipend?
Historically, stipends were primarily used as part of an internship or fellowship package. These days, however, it’s not uncommon for employers to use a stipend as a “fringe benefit” added to your overall compensation package.
The stipend may be earmarked for certain expenses and your employer may ask for specific records or notekeeping to access it. Fringe benefit stipends may include:
• Transportation stipends
• Travel stipends
• Education stipends
• Clothing stipends
• Entertainment stipends
• Food stipends
The type of stipends offered usually depends on the nature of your work. For example, if you have to travel frequently for your job, your employer may give a travel stipend to allow you to have flexibility in making your travel plans.
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Are Stipends Taxable?
Stipend checks aren’t considered wages so you won’t pay Social Security or Medicare taxes on them. However, you may still have to pay some taxes on a stipend.
If you are offered a stipend for an internship or work in academia, it might be called a “living” stipend, which means it is being given to you to help pay for expenses.
Though taxes will not be taken out, this stipend is likely considered taxable income and you will need to set aside some of your stipend money to pay any taxes owed at the end of the year.
In some academic settings, however, a stipend may be what is considered a scholarship and earmarked for educational purposes only (rather than living expenses). In this case, the stipend may not be taxable.
If you’re offered a stipend for academic work, it can be a good idea to speak with a financial professional or your financial aid office to understand how the stipend is meant to be used and how it will be treated tax-wise.
Stipends offered by companies to their employers may or may not be taxable — it depends on how the company structures the stipend.
In order to keep a stipend non-taxable, a company must set up a reimbursement plan in which employees complete expense reports proving that all business-related expenses are being reimbursed through the payment of the stipend.
For example, if you’re given a travel stipend to go to a client meeting, then the stipend may not be taxable if you provide adequate expense documentation of how the stipend was used and how each payment was an acceptable business expense.
If expenses are not documented — or if the stipend is a “perk” of working at the company, such as a commuting stipend or stipend for in-office meals — then the stipend may be taxable.
If your company is offering you a stipend, it can be a good idea to ask your employer, as well as a tax professional, about any tax implications.
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How to Use a Stipend
If you accept an internship or other position that offers a stipend to help cover expenses, it can be a good idea to consider how the money will be spent and set up a budget for basic living expenses.
Unlike a salary or wages, you may need to make a stipend stretch several months. A good first step is to assess your monthly expenses, including:
• Housing
• Food
• Transportation
• Amount set aside for potential taxes
• In case of emergency expenses
A stipend is not generally expected to cover all of the expenses you may incur, so you may need to find ways to stretch your money, such as moving in with a friend or relative, or bring in extra income by getting a side gig or part-time job.
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Can You Negotiate a Stipend?
There may be some wiggle room, but how much (if any) will depend on several factors, including what the stipend is for, the field you’re in, and the reason for asking for an increased stipend.
For example, if you are a student who received a stipend to do international research, you may find that the cost of travel and lodging is more than the organization or school offering the stipend anticipated. This could be something you could bring to the organizer’s attention, to see if there’s any wiggle room in allocating more dollars.
In addition to assessing your expenses (to see if the stipend will be enough), you may also want to look at similar positions and review what their stipends are. If other positions are offering more, you may want to consider asking for that amount.
In some cases, however, a school, organization, or company may not have wiggle room to access more money and may offer the same stipend to interns or apprentices across the board.
Doing some research and framing the conversation respectfully can be helpful as you navigate the next steps and whether or not the stipend package makes sense for your financial needs. It can be wise to research salary negotiation tips in advance so you know good ways to phrase your request, if you do try to get a higher sum.
The Takeaway
A stipend is a predetermined amount of money that is often paid to certain individuals, such as trainees, interns, and students, to help offset some of their expenses. Stipends can have financial implications, so it’s wise to learn how the stipend may be taxed and what records are necessary for any incurred expenses during the stipend.
As you plan for life with a stipend, it can be a good idea to set up a budget and track your expenses to make sure you don’t run out of money mid-program. Your bank may offer a tool to help with this.
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