how stipends work
a stipend is often offered to individuals as a fixed sum and is commonly paid to the recipient as a lump sum payment this type of compensation is sometimes called an allowance and is normally provided on a daily weekly or monthly basis a stipend is usually offered as compensation for training instead of salaries for employment purposes that being said it allows people to pursue work that is normally unpaid by helping defray living expenses interns apprentices fellows and clergy are common recipients of stipends rather than being paid for their services they re given stipends as financial support while they engage in the service or task at hand a stipend often includes other benefits such as higher education room and board rules outlined by the department of labor dol exist surrounding how stipends can be used by companies and organizations stipends cannot be used to hire students to replace existing staff and the students must be the primary beneficiaries of the employment or training not the company also a stipend may be lower than the minimum wage as long as it s used to pay trainees 1for w 2 employees stipends cannot replace salaries they can only be an added benefit to an employee s salary the stipend amount an individual receives often depends on the task they are assigned or the expense that is being offset for instance a company may pay a trainee 450 for a week s worth of training or a church may pay a clergy member 1 000 for living expenses most stipends are considered taxable income so you ll have to pay the entire 15 3 withholding tax out of your own pocket this includes both your portion and the employer s portion 2special considerationsif you receive a stipend there are certain things you must consider one of the main advantages of this type of compensation is that you may get to keep what you earn depending on your employment status depending on your status you may not have taxes withdrawn to pay for medicare and social security but remember the majority of stipends are considered a form of taxable income this means recipients need to set aside a portion of their earnings for the 2024 tax year the withholding rate for both programs is 15 3 12 4 for social security and 2 9 for medicare half of this is paid by the employer 3recipients should be careful about how their payments are classified students and interns should be classified as such if the company identifies you as an employee your stipend may be taxed and you won t receive the full amount and in this case you re entitled to receive the minimum wage and any overtime pay if it applies on the other hand employees should ensure they aren t considered trainees this could lead to complications with their pay 1not all stipends are considered taxable for instance fringe benefits like parking are only taxable after a certain amount be sure to consult with a tax consultant if you re unsure about the tax implications of your stipend 4types of stipendsas mentioned above stipends are not hourly based pay and are often used by employers as a lower cost option to pay interns or to offset the cost individuals bear while executing certain services as such stipends can vary depending on the company or organization that pays them some companies pay stipends to help cover housing food or travel expenses here are just a few of the types of stipends that are offered stipends are commonly offered to researchers at academic institutions or other related organizations to help them focus on their projects much like grants these stipends may be furnished by third parties who wish to see a particular study or form of research advance further without fiscal distractions that may otherwise hamper the researcher foundations and comparable entities might also offer stipends on similar terms to support the work of researchers and the projects they are developing stipends might also be offered to cover very specific costs and expenses for instance students could receive a stipend that must be used toward the purchase or lease of computers during academic semesters alternatively stipends may be issued to help defer the cost of transportation incurred by the recipient to and from the company for training purposes since employers don t have to offer health benefits to interns some of them may offer their workers extra money by adding it to their paycheck to help them with health insurance costs individuals can then use this extra cash to put toward paying for their insurance premiums for coverage that can be purchased either through the healthcare exchange or directly from private insurers health and wellness are now an important part of the work life balance that many employers promote so it s only natural that a lot of companies also offer stipends for employees that can be used for a variety of fitness expenses such as gym memberships yoga classes or even personal trainers as part of a wellness program some companies offer stipends to employees who wish to take additional training and classes that may assist them with their jobs and career development the employee may enroll and pay for classes or additional training for which the employer provides a reimbursement examples of stipendsmany corporations and organizations offer stipends to workers and other individuals the following are just a few examples that are found in the real world 