What is a stipend?
Editorial staff, J.P. Morgan Wealth Management
- A stipend is a fixed amount of money that covers specific expenses, like housing and transportation, often in place of a salary or an hourly wage.
- Stipends are typically offered to interns, students, researchers, volunteers and clergy members.
- Stipends may count as taxable income depending on how the money is used and the type of expenses they cover.
You might’ve come across the term “stipend” in job postings, internship offers or educational programs and wondered what it means. A stipend is different from a traditional paycheck and often comes with its own unique benefits. Whether you’re a student, an intern or exploring career opportunities, knowing what a stipend is can help you understand what to financially expect from your new position.
Below, we’ll explore how stipends work, how they’re different from other forms of payment and whether they’re taxable.
What is a stipend?
A stipend is a fixed sum of money paid to individuals to support their participation in certain programs, roles or activities. It isn’t paid based on hours worked or structured as part of a traditional employment contract, like a salary or hourly wage would be. Instead, a stipend is meant to cover basic expenses, like transportation, housing or living costs while the individual (like a student or an intern) contributes to the organization.
Stipends are commonly provided during internships, fellowships or academic research roles, where the focus is on learning or service rather than official employment. However, stipends may be given out in addition to a regular salary in some cases. This is called a fringe benefit.
Stipend example
Imagine you’ve accepted a summer internship for an organization that offers a $1,500 stipend for three months of work. The organization explains that this amount is intended to help you cover the costs of commuting to and from the internship, meals and other personal expenses during your time there.
With a regular paycheck, you’d receive money based on the hours worked. But with a stipend, you get paid a set amount of money for your participation in the program.
How do stipends work?
Stipends are typically paid out as a fixed amount of money over a set period of time. Payment schedules vary depending on the company, organization or program. Some stipends are provided in a lump sum at the beginning of the program, while others are distributed on a regular daily, weekly, biweekly or monthly schedule.
Unlike a formal wage, the purpose of a stipend isn’t to fully replace income. It’s meant to provide some financial support to individuals who participate in the program and make it more accessible to them. However, if the recipient doesn’t spend the full stipend on the intended expenses, like meals or transportation, they’re often free to use the remaining funds however they see fit.
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Types of stipend
Internship stipends
Many internship programs – especially unpaid or partially paid ones – provide stipends to help interns cover certain costs during their time at the organization. These expenses might include food, housing or job supplies, like a laptop. The amount of these stipends usually depends on the cost of living in the area.
Research stipends
Teaching assistant and graduate stipends
Teaching assistants (TAs) and graduate students often receive stipends for their work in addition to tuition remission, which is a benefit that covers part or all of the cost of tuition. These stipends help cover living costs while the TA or grad student fulfills their academic or instructional duties.
Fellowship stipends
Clergy or religious stipends
Volunteer or service stipends
Employer fringe benefits
Some benefits offered by employers such as money paid to the employee for job training, health insurance premiums, medical bills, dental care, vision care and wellness programs may be considered a stipend. For more information on how these are taxed, you should refer to IRS publication 15-B or speak to a tax professional.
Are stipends taxable?
Whether a stipend is taxable depends on how it’s used and the purpose of the payment. According to the IRS, stipends used for qualified education expenses – like tuition, books and school supplies – typically aren’t taxed. Clergy stipends may also have different tax rules. However, stipend pay that’s used for personal expenses, like housing, travel and meals, may be considered taxable income.
For tax purposes, stipends may be considered taxable income, even if they are not subject to traditional payroll taxes. The specific form needed depends on the nature of the stipend and the recipient's tax situation:
- Form 1099-NEC (Nonemployee Compensation): If the stipend is paid to an independent contractor or freelancer, the payer may issue a 1099-NEC if the total amount is $600 or more.
- Form W-2 (Wage and Tax Statement): If the stipend is considered taxable wages by an employer, it may be reported on a W-2 with taxes withheld.
- Form 1098-T (Tuition Statement): If the stipend is related to a scholarship or fellowship for educational expenses, it may be reported on a 1098-T by the educational institution.
- Self-Employment Tax Forms (Schedule C and SE, with Form 1040): If a stipend is considered payment for services (but without tax withholding), recipients may need to report it as self-employment income and file Schedule C (Profit or Loss from Business) and Schedule SE (Self-Employment Tax) along with Form 1040.
- Form 1040 (U.S. Individual Income Tax Return): Regardless of whether a stipend is reported on a 1099-NEC, W-2 or another form, recipients must include it in their taxable income when filing their tax return.
- Form 8917 or Schedule A (Itemized Deductions): If stipends are used for educational expenses, deductions or credits (like the Lifetime Learning Credit) might be available.
The bottom line
Stipends provide flexible financial support to individuals in unpaid roles, including interns, students, volunteers and clergy members. While they’re different from traditional wages, understanding how stipends work can be an important part of effectively managing your finances. By factoring stipends into your financial planning, you can stay organized and work toward your long-term financial goals. Because the tax treatment for stipends may differ depending on the role, speak to tax professional to understand your obligations.
FAQs
Getting paid a stipend means receiving a fixed amount of money that’s meant to cover specific costs during an internship, grad school program, fellowship or other unpaid opportunity; also some people are paid stipends on top of their salaries. Unlike hourly wages or a salary, a stipend isn’t tied to the hours worked. However, it’s still designed to provide some financial support while you gain experience in a career field or contribute to a cause.
For tax purposes, in most cases, a stipend is considered income because it provides financial support to the recipient. However, there are exceptions – like when a company offers a wellness stipend as a fringe benefit to salaried employees. In this case, the stipend isn’t deemed income and is rather an employer-provided benefit, which has different tax implications.
A salary is a regular payment for work based on a formal employment agreement, and it’s often tied to hours worked or performance. A stipend, on the other hand, is a fixed amount of money intended to cover basic expenses and isn’t related to traditional employment or hourly work.
Stipends can be paid in different ways depending on the type of organization and the payment arrangement. Some stipends are issued as a one-time lump sum, while others are paid out weekly, biweekly or monthly.
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Editorial staff, J.P. Morgan Wealth Management
