Stipend : Meaning, Working, Types and Examples

What is a Stipend?

A stipend refers to a fixed amount given periodically for services provided or to cover expenses. It is often offered to various individuals, such as students, apprentices, trainees, interns, and clergy members, as a form of payment. Stipends are commonly used to help offset specific costs and may be provided alongside or instead of a regular salary. They are typically given as a single payment and might include benefits such as accommodation, education assistance, and meals.

Geeky Takeaways:

• Stipends are fixed amounts offered periodically for services provided or to cover expenses, commonly given to distinct individuals.
• Stipends shall or shall not be taxable, depending on the context and purpose; stipends for educational purposes are often tax-exempt, while those for work-related training or experience are usually taxable.
• Recipients are responsible for setting aside a portion of their earnings for taxes if the stipend is taxable income.
• Stipends can be deposited directly into a bank account or paid in cash; recipients should ensure proper documentation to avoid issues with tax authorities.

How do Stipends Work?

1. Purpose and Nature of Stipends: Stipends, despite sharing a similar structure with salaries in the form of fixed monthly payments, serve a distinct purpose. Stipends function more as financial aid. They support individuals involved in training or learning experiences, acting as training allowances rather than payment for services rendered. This distinction is particularly evident in the case of interns, who often receive stipends instead of traditional wages.

2. Regulations and Guidelines by the Department of Labor (DOL): The DOL outlines specific guidelines governing the utilization of stipends by firms. One crucial regulation prohibits companies from using stipends to replace existing employees with cheaper student labor. Instead, the primary aim of stipends should be the development and educational growth of the student, not the financial benefit of the company.

3. Modest Financial Assistance: Stipends are typically designed to cover basic living expenses during the period of learning or training. As such, they are often modest in amount. For instance, intern stipends might range from ₹10,000 to ₹15,000 per month, although exceptions may exist in certain cases. Despite their modest nature, stipends play a vital role in providing valuable financial support to individuals undertaking educational or training endeavors, easing the burden of living expenses during these experiences.

Types of Stipends

1. Training Stipends: A training stipend serves as compensation for individuals undergoing job-related training, continuing education, or career development. It aims to assist in covering basic living expenses during the training period and can complement a regular salary. It encourages individuals to pursue further professional growth and skill development.

2. Wellness Stipends: Wellness stipends are financial benefits provided to employees to promote their health and well-being. These stipends can be used for various wellness-related expenses, such as yoga classes, personal trainers, fitness memberships, or other activities that support a healthy lifestyle. They contribute to fostering a positive workplace culture and employee satisfaction.

3. Health Insurance: Some employers offer health insurance stipends to help employees with their health insurance costs. This additional money can be added to an employee’s paycheck and used towards covering health insurance premiums, limiting the financial burden of healthcare expenses. It ensures that employees have access to adequate healthcare coverage.

4. Internship: Interns often receive stipends as compensation during their internship period. These stipends help offset living expenses while interns gain valuable experience in their field, making internships more accessible to individuals from diverse backgrounds. It provides financial support to interns during their professional development.

5. Academic Research: Stipends are commonly utilized in academia to support research projects. They can cover expenses related to research activities, including equipment, travel, books, or other project-specific costs, enabling researchers to focus on their academic pursuits. They facilitate groundbreaking research and innovation.

6. Employee Stipends: Employee stipends are additional forms of compensation provided by employers to enhance employee benefits. They can encompass various types, such as education stipends, meal stipends, wellness stipends, and more, catering to the diverse needs and well-being of employees. They boost employee satisfaction and retention.

7. Research: Stipends may be allocated for research purposes to support individuals conducting advanced research projects. Organizations like the National Endowment for the Humanities often grant these stipends, covering expenses associated with research activities. They encourage scholarly pursuits and academic excellence.

8. Fellow: Fellowship stipends offer individuals opportunities to acquire skills, gain new perspectives, and form essential contacts. They can cover living expenses and fees related to academic research or specific projects, facilitating valuable learning experiences. They foster collaboration and knowledge-sharing among fellows.

9. Clergy: In religious contexts such as the Catholic Church or the Church of England, clergy members may receive stipends as part of their compensation for their services or duties within the church, supporting their livelihood and ministry. Stipends acknowledge the dedication and service of clergy members to their communities.

10. Commuting Stipends: Certain companies provide commuting stipends to help employees cover transportation costs incurred during their daily commute. These stipends lessen the financial burden of commuting expenses, making it more affordable for employees to travel to and from work. They promote the accessibility and affordability of transportation.

11. Job Training and Apprenticeships: These stipends are offered in job training programs and apprenticeships to provide financial support to trainees as they learn new skills or gain experience in a specific field, making training opportunities more accessible. They encourage participation in skill-building initiatives and workforce development.

12. Education: Stipends can support educational pursuits by covering tuition fees, course materials, or other educational expenses, enabling individuals to pursue further education or training opportunities without financial constraints. They facilitate access to higher education and lifelong learning.

13. Meal Stipends: Employers may offer meal stipends to cover meal expenses incurred during work hours or business-related activities, providing financial assistance to employees for their food costs. Meal stipends promote healthy eating habits and employee well-being.

14. Specific Expenses: Stipends may be provided to cover specific expenses such as home office expenditures, childcare costs, transportation fees, virtual meals, or other costs associated with work or training activities, offering support where needed. They address individual needs and ensure financial stability during work or training engagements.

15. Church Stipends: Church stipends may be provided as payments for specific services rendered by clergy members or as gifts for certain religious practices, supporting their ministry and livelihood. They sustain clergy members in their spiritual and pastoral duties.

16. Remote Work: Stipends for remote work may include benefits such as power bill coverage, virtual meal reimbursements, home office upgrades, and other allowances that support employees working remotely, enhancing their productivity and well-being. Remote work stipends foster a conducive and efficient remote work environment.

17. Volunteering Stipends: While volunteers most often do not receive stipends due to legal implications, some firms may offer temporary stipends for volunteers working on specific projects or initiatives that require financial support, recognizing their contributions and dedication. Volunteering stipends acknowledge and appreciate volunteers’ valuable contributions to projects and initiatives.

Real-World Examples of Stipends

1. Facebook Internship Benefits: Facebook provides interns with a $1,000/month stipend, in addition to a range of other benefits. These include assistance with child care, health club memberships, life insurance coverage, support for relocation expenses, and various health benefits for employees. These benefits aim to support interns during their internship period and contribute to their overall well-being and professional development.

2. National Endowment for the Humanities Grants: The National Endowment for the Humanities offers grants in the form of stipends to support individuals engaged in advanced research projects. These stipends play a crucial role in funding distinct research attempts, such as articles, digital publications, books, translations, and archaeological reports. By providing financial assistance, the NEH facilitates scholarly pursuits and academic excellence in the humanities field.

3. Goldman Sachs Employee Benefits: Goldman Sachs offers a comprehensive range of benefits to its employees, aimed at supporting their personal and professional lives. These perks include coverage of up to $10,000 for adoption costs, unlimited standby travel, discounted airline tickets, and other perks. These benefits contribute to employee satisfaction and well-being, foster a positive work environment, and promote employee retention.

Who Qualifies to get a Stipend?

1. Trainees: Trainees undergoing job-related training or apprenticeships may receive stipends to assist with essential expenses during their training period, providing financial support while they gain valuable skills.

2. Interns: Interns across distinct sectors often receive stipends during their internship tenure to offset living expenses and contribute to projects, ensuring financial constraints don’t hinder their professional development.

3. Research Fellows: Research fellows may be eligible for stipends to support their academic projects and cover associated expenses, empowering them to advance knowledge in their fields.

4. Clergy Members: Clergy members in religious institutions may receive stipends as part of their compensation, acknowledging their pastoral duties and sustaining them in their roles.

5. Volunteers: Volunteers engaged in specific initiatives may receive temporary stipends, though this practice is generally discouraged due to legal and tax implications.

6. Employees: Employers offer stipends for wellness, commuting, meals, and remote work allowances, enhancing employee well-being and supporting work-related needs.

7. Apprentices: Apprentices receive stipends to manage living expenses during training, facilitate skill development, and contribute to a skilled workforce.

Tax on Stipend

1. Taxable Scholarships: Stipends listed on Form 1042-S with income code 16 in box 1 are classified as taxable scholarships for permanent residents, US citizens, and resident aliens for US tax purposes. Recipients must report this income on Form 1040-NR line 1 and ensure correct classification in tax software to prevent misinterpretation and avoid potential errors in taxation.

2. Tax Withholding: Unlike wages, stipends usually do not have taxes like Social Security or Medicare withheld by employers. It is the responsibility of stipend recipients to allocate a portion of their earnings to cover any taxes owed on the stipend income.

3. Tax Implications: Recipients of stipends must recognize that most stipends constitute taxable income, which may necessitate tax payments. Understanding the tax implications is pivotal, and individuals should allocate funds to meet potential tax obligations associated with stipend income.

4. Tax Classification: Accurate classification of stipend income is vital for precise taxation. Recipients should seek clarification from their employers or tax professionals regarding the tax status of their stipend and comprehend how it should be documented on their tax returns to prevent any discrepancies in taxation.

5. Consultation: In instances of uncertainty regarding the tax implications of a stipend, individuals should seek advice from tax consultants or professionals. Consulting with experts can guide managing the taxation of stipend income and ensure adherence to applicable tax regulations.

Difference between Stipend and Salary

Basis	Salary	Stipend
Nature of Payment	Salary is the fixed remuneration for regular work performed as part of a job.	A stipend is a fixed payment to interns, trainees, or apprentices for living expenses during learning experiences.
Recipient & Relationship	Salaries are paid to employees in an employer-employee relationship.	Stipends are paid to apprentices, interns, or fellows in a mentor-student relationship.
Tax Implications	Salaries are taxable income, subject to income tax, Social Security, and Medicare withholding.	Stipends shall or shall not be taxable, depending on the context and purpose. Educational stipends may be tax-exempt, while work-related stipends are often taxable.
Flexibility & Increment	Salaries can vary based on performance, merit, or annual increments.	Stipends are fixed amounts that usually do not change during the stipend period.
Purpose & Usage	Salaries are used for general savings, living expenses, and discretionary spending.	Stipends are designated for specific purposes, such as healthcare, education, or travel, and recipients may need to provide evidence of expenditure.

Stipend – FAQs

Can the stipend be paid in cash?

Stipends can be provided either in cash or deposited directly into a bank account. If your principal doesn’t provide any receipt for such a stipend, and if tax authorities later question you about the source of such income, you can always ask your principal to provide you with an undertaking stating that such an amount was paid by him as a stipend.

Are all stipend incomes exempt from tax?

Stipends received, like scholarships, are tax-exempt. Whereas, stipends received by interns or other article associates as income for the work or duties performed by them are taxable as their income, subject to the basic exemption limit of the Income Tax.

What is the highest stipend offered?

Stanford University offers one of the highest stipends, with Ph.D. students receiving $45,850, making it a dream for many.