What is a stipend? How it works and tips to make the most of it

In most jobs, your compensation comprises more than just your salary. It also includes benefits and extra pay — which sometimes come in the form of a stipend.

Seeing this type of benefit as part of a job offer, internship description, or research position is exciting. A regular stipend can make a big difference in covering living costs or more specific expenses like gym memberships and internet bills. But the details might be unclear. What does “stipend” mean? How do stipends work, and how do they differ from a regular salary?

To help remedy any confusion and take full advantage of the opportunities stipends can provide, this comprehensive guide will explore what a stipend is, its meaning, and how to make the most of it.

What is a stipend?

A stipend is a fixed sum of money paid regularly to someone, typically as an allowance or to cover expenses. Unlike a salary, which is compensation for work performed, a stipend is often given to support someone during a period of learning or training or to cover living expenses.

Common examples include stipends for interns, graduate students, or individuals in certain training programs. Stipends are usually lower than salaries and may or may not be subject to taxes, depending on the specific circumstances and local regulations.

For permanent workers, stipends may facilitate personal and professional development opportunities, such as learning enhancements and wellness-related activities. Internships, fellowships, or academic research positions could also offer stipends in lieu of salaries to cover living expenses.

Is a stipend the same as a salary?

Although they both involve payment from a company or organization to an individual, stipends aren’t the same as salaries. Here are five main differences between them: 

• Purpose: Salaries offer compensation for work, and stipends offer funds to pay for specific expenses. You can spend your salary on anything you want, but stipends must cover the intended expense. For employees, stipends are only one part of a compensation package — not the whole thing.
• Tax implications: For most salaries and regular wages, an employer will withhold taxes so the employee doesn’t have to pay out-of-pocket later. Most organizations don’t withhold taxes from stipends, so they count as taxable income and need to be reported on your annual tax return. But if an employer is reimbursing you directly to your bank account, you often won’t have to pay taxes.
• Related laws: Salaries must adhere to state and federal minimum wage laws, while stipends do not. The amount of the stipend is up to the organization offering it and its intended purpose. 
• Universality: Salaries and wages might fluctuate depending on your experience, position, and seniority. But stipends are usually fixed. If your company offers a $50 monthly wellness stipend, this amount will usually be the same no matter what your performance or level is.
• Employer-employee relationship: In the context of internships, fellowships, and similar stipend-based positions, the organization isn’t an official employer. Stipends reflect an understanding that the recipient will likely be gaining significant non-monetary value, such as education, professional connections, or work experience instead of long-term employment. When it comes to salaries, the company is an official employer and has to abide by employment laws.

How do stipends work?

Stipends are typically a predetermined amount paid either in a lump sum or periodically on a weekly, monthly, or annual basis. Unlike a salary, they're not based on hours worked or performance, but are a fixed amount intended to help cover a certain cost. Often you’ll need to submit a receipt to receive reimbursement. 

Stipends usually work in two ways:

• To cover living expenses: For interns, academic fellows, and other people in positions that are typically unpaid, stipends provide financial support. Although stipends might not cover all living expenses, they make it more feasible for people to fill these positions without needing to earn money elsewhere. Some programs also include room and board as part of this support. Some remote employees may also receive “home office” stipends to cover electricity or internet expenses.
• To cover additional expenses: For salaried employees, stipends are usually small sums paid on top of their usual wages. These unique employee benefits aim to cover individual expenses like office supplies and wellness programs. Usually, companies expect recipients to prove they’ve spent the stipend on its intended purpose.

Who receives stipends?

Stipends can appear in a wide range of settings, but they’re most common for job trainees, academics, and employees. Here’s more about what a stipend could mean in each context:

Interns and trainees 

Interns and trainees may not be entitled to minimum wage under the Fair Labor Standards Act (FLSA) if they fall under the category of “intern” or “trainee” for “for-profit” employers. Instead, their supervising organizations might use stipends to help them cover some or all of their living expenses. For example, the University of Arizona offers a $2,500 stipend for summer interns so they can focus on learning. Most internships are unpaid, and although stipends can vary widely, they make these opportunities more accessible even if they don’t cover all expenses.

Graduate students and fellows 

Depending on the nature of their work and relationship with the institution, graduate students and researchers might not be entitled to compensation, according to the FLSA. Many institutions have stipend standards in place to cover living costs for master’s students and PhD candidates, such as Cornell University, which offers a minimum of about $32,500 per year for research assistantships and fellowships. 

Employees

For contractors or permanent employees, companies might offer fringe employee benefits in the form of stipends. These stipends could cover anything from career coaching to work-from-home setups — it just depends on what the company values and wants to offer. They’re usually an addition to the regular salary or wage, and the recipient has to use it for the employer’s specific purpose. 

Wellness stipends, a common type of fringe benefit, can cover gym memberships, subscriptions to mental health apps, or massages. Commuting stipends offset daily travel expenses, offering money to pay for transit passes or ridesharing. And learning and development stipends could cover additional training and certifications to enhance your performance.

Types of employee stipends

If you’re applying for jobs and want to know what fringe benefits are out there, or if you’re interested in asking your company about stipends, here are a few common types to consider: 

Wellness stipends

Many companies offer wellness stipends to cover health-related benefits like gym memberships, wellness programs, or mental health resources. Some stipends may be general, meaning you can spend them on anything wellness-related, and others might be more specific, like for health insurance. If you’re interested in exploring life coaching or professional coaching, your employer might also allow your stipend to be used for coaching purposes as well. 

Travel stipends

Travel stipends cover the costs associated with business travel, which could include attending conferences or commuting every day. This stipend ensures that travel expenses don't hinder professional development and collaboration. It could include flights and hotels, local commuting and meals, or even vacations to encourage rest.

Professional development stipends

Professional development stipends provide financial support for career-enhancing activities such as workshops, courses, or conferences. These stipends enable employees to pursue growth opportunities without worrying about the financial burden, fostering a culture of continuous learning and development. They might include online courses, industry certifications, or unrelated learning outside of work.

Are stipends taxable?

While generally considered taxable income, stipends may have unique tax implications depending on their use. Stipends that cover qualified educational expenses, such as tuition, books, and supplies, might be exempt from tax under certain conditions. But when it comes to wellness and development stipends from employers, they count as taxable income under fringe benefits.

Keep in mind that the method of reporting stipend income can differ from your salary or wages. Since stipends aren’t classified as wages, you shouldn’t report them as 1099 or W-2 income. You may need to report them on your tax returns as fellowship grants or other income, depending on their purpose. Your circumstances, including your residency status and the specific terms of the stipend, play a significant role in determining the tax treatment of the stipend income, so make sure you’re clear on the details before filing.

Why do companies offer stipends versus additional pay?

If your company is offering you a stipend for fringe benefits, you might be wondering why they’ve opted for a stipend instead of simply raising your salary. 

The company could have made this choice for several reasons. Stipends help add to the value proposition of the position, prompting more people to apply. They can be more cost effective for the company than salary increases. Since stipends don’t count as regular wages, they often incur different payroll taxes and benefits costs than additional pay (excluding Social Security and Medicare taxes). That means the company doesn’t have to pay as much to give you extra benefits, and you still get the stipend for things like wellness programs or learning opportunities.

How to negotiate stipends: 3 tips

Although many workplaces offer set stipends that you can’t negotiate, you might be able to include stipends in your negotiation when you get a new job or seek a raise. Just like asking for a salary range, requesting stipends is about ensuring fair compensation for your efforts and expenses. Here are some negotiation tips:

1. Research market rates

Knowledge is power in negotiations. Start by researching the typical stipend amounts for the benefit you’re asking for. Take advantage of pay transparency and look into stipends for similar roles or positions within your field, considering factors like geographic location, cost of living, and the nature of the work or study. For example, if you work in tech, you might find that Salesforce’s $100 wellness reimbursement is a good average to start from. 

2. Assess your needs

A stipend's primary purpose is to cover a specific expense or group of expenses, so make sure the amount you’re receiving, or want to receive, matches those costs. If you find that gym memberships in your area are $60 per month but your stipend only offers $30, that’s a good reason to ask for an increase. Make sure that when you enter negotiations, you have solid proof of these average costs so the person you’re speaking with understands where you’re coming from. 

3. Consider the total package

Sometimes, a stipend is just one part of your overall compensation plan. Consider other benefits of the position, like career growth opportunities, travel allowances, or other stipends. Your company might not offer a stipend that covers perks like gym memberships and massages, but it might have a robust healthcare plan, which could be enough for you to balance those costs. Be realistic about your needs and what your company can offer.

Take advantage of every benefit

Stipends help interns and academic researchers fulfill their roles without struggling financially, but they also give employees extra benefits. Understanding what a stipend is can help you make informed decisions about your pay and ensure you use it correctly. Whether this extra cash covers emotional well-being or travel expenses, it’s an exciting perk that can be a key player in earning the compensation and benefits you deserve.