Pay & Salary

What Is a Stipend and How Does It Work?

February 22, 2021

A variety of opportunities exist to further your career development or academic learning. However, many of these opportunities do not provide salaries or hourly wages, so you may be hesitant to apply. If you want to look into an internship, apprenticeship or new academic endeavor, but need to earn money to cover your living expenses, consider an opportunity that offers a stipend. In this article, we explain what a stipend is, who is eligible to receive one and the different types of stipends available that can help you further your career or education or explore a life path.

What is a stipend?

A stipend is a fixed amount of money provided to people pursuing unpaid work to help offset expenses such as housing and food. A stipend may exempt a person partially or entirely from waged or salary employment.

Read more: Stipend: Definition and Types

Who receives a stipend?

Stipends are provided to those ineligible to receive a regular salary or wage in return for their services. Researchers, graduate students, clergy, interns and apprentices are common recipients. Normally, to receive a stipend, the job must focus on training and learning, and the training must primarily benefit the recipient rather than the employer. For internships and apprenticeships, an employer may not promise the recipient a job at the end of the training or have them do work in place of a regular employee.

How do stipends work?

Stipends offer simple financial assistance but come with a few rules. Here's how they work:

  • Stipend uses
  • Minimum wage
  • Tax withholding
  • Tax return reporting
  • Negotiations
  • Stipend vs. salary

Stipend uses

The most common use for a stipend is to cover expenses related to housing, food and travel. But stipends also encourage certain activities, such as academic research or continuing education for career development. Some schools may offer stipends to cover technological equipment like laptops. Employers may offer a stipend in addition to regular pay to cover health insurance or cover gym memberships to encourage healthy practices.

Minimum wage

If you meet the requirements to receive a stipend, the amount an employer provides is at their discretion. There is no minimum amount for a stipend, and it can equal less than the minimum wage per hour worked.

Tax withholding

A stipend does not count as wages earned, so no Social Security or Medicare taxes get withheld. This means your employer will not withhold any taxes for you. However, a stipend does count as taxable income, so you will need to plan to set aside money for the taxes you will owe on your stipend at the end of the year.

Tax return reporting

It's important to ensure your stipend gets recorded on your tax return. You may see it referred to as a "taxable scholarship," "non-qualified fellowship," "taxable grant scholarship" or another similar phrase. Speak with a local tax person about what forms you need to report your stipend and how to fill them out correctly.

Related: Income Tax, Tax Brackets and Deductions Explained

Negotiations

Depending on the organization, you may have the opportunity to negotiate an increase in your stipend. Do your research and consider the following factors before asking for an increase:

  • What similar positions receive for stipends: If other positions of similar nature offer more, consider asking for that amount of money.

  • If the stipend covers your living expenses: Determine if the stipend you currently receive will effectively cover your average living expenses.

  • Other benefits: In addition to inquiring about a stipend raise, consider other benefits that may help you if a raise is unavailable, like tuition credit, or room and board.

When asking for a stipend raise, show appreciation for the opportunity, explain your research findings and clearly state the amount you need.

Stipend vs. salary

Before accepting or negotiating a stipend, take into account these key differences between a stipend and a salary:

Salaries

Some of the key characteristics of salaries include:

  • Compensation for employees
  • Pays for services or amount of hours worked
  • Typically paid out biweekly or weekly
  • Opportunity for an increase based on performance
  • Subject to minimum wage requirements
  • Taxed by employer

Stipends

Stipends often have these characteristics:

  • Fixed amount paid to interns, apprentices, clergy and trainees
  • Does not depend on services or hours worked
  • Not subject to minimum wage requirements
  • Not taxed by the employer (recipient must withhold own)

Keep in mind additional benefits a salary position or stipend may offer. For example, an apprenticeship may allow you to work directly under an expert in the field you want to enter, which gives you an academic or job experience advantage when entering the workforce. On the other hand, the health insurance benefits of a salary position may be more appealing to you if you have a family or incur large medical expenses over the year.

Types of stipends

Many types of stipends exist to cover the expenses of various voluntary and unpaid work. Here are some common situations where employers may offer stipends:

  • Academic research
  • Health insurance and wellness
  • Job training and apprenticeships
  • Internships
  • Fellowships
  • Clergy

Academic research

Institutions commonly offer stipends to researchers to allow them to focus on their projects without the distractions of a full-time or part-time job. Similar to grants, third-party interests may provide these stipends because of their interest in seeing the advancement of the specific research. Foundations also sometimes offer stipends for similar reasons.

For researchers to receive a stipend, their projects must meet the following criteria: the project goes beyond the collection of data and the information gathered gets analyzed and interpreted.

Health insurance and wellness

Employers may offer healthcare stipends to cover the cost of health insurance if the employer does not provide these benefits. Additionally, some employers may offer stipends to cover the cost of a gym membership, encouraging employees to exercise and live healthier lives.

Job training and apprenticeships

Some companies provide stipends to employees who wish to further their careers with additional job training. Apprentices receive stipends to cover their living expenses while they complete their apprenticeship.

Related: What Is an Apprenticeship?

Internships

Some internships provide stipends to cover the cost of housing and food. Most companies have a set stipend based on the average cost of living in the area the intern works. Internships often lead to full-time positions, so employers want to ensure interns can focus and perform well on the job without financial stress.

Related How to Create a Resume for an Internship

Fellowships

Fellowships provide financial aid to students and may offer tuition support in the form of a stipend. The student does not need to perform any services to receive the stipend other than continue to pursue their education.

Clergy

Clergy members may receive a stipend paid for by congregation donations. This stipend allows the clergy to practice their ministries without needing another job to cover their living expenses.

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