When it comes to non-salaried jobs and experiences, compensation can get murky. If you’re researching graduate education options, internships, and new jobs, you might find the word “stipend” as part of the postings.
But it might not be clear what that stipend looks like, or what it means for your compensation range. It could be a lump sum, an honorarium, or part of your healthcare plan. And sometimes, you won’t know until you submit your application.
Before accepting a stipend, it’s important to know what the standards are and how this alternative form of payment could affect your income.
So what’s the difference between receiving a salary versus a monthly stipend, and what are the tax implications? To help you navigate these murky waters, here’s an explanation of the stipend versus salary distinction and eight types of stipends you might encounter.
What’s a salary?
A salary is a payment that employees receive on a regular basis as compensation for the work they do in their role. In most cases, salary figures cover a year’s work, but they’re usually paid out every two weeks or every month.
An employer could pay you an annual salary of $60,000 as $5,000 every month or $2,500 every two weeks.
An hourly wage isn’t a salary. Employers pay hourly employees a set rate per hour, not per year. But, like a salary, it’s compensation for that worker’s services. And like salaried employees, hourly workers usually receive their pay every two weeks or month.
What’s a stipend?
A stipend is a fixed amount of money, and employers usually offer it for a specific purpose, like education, healthcare, or travel. Employers have control over the amount and purpose of the stipend.
A graduate student or an intern might receive one that covers living expenses while they study or work, and members of a church might receive a stipend to focus on religious work without having to balance it with a salaried job.
Some organizations offer stipends as part of a compensation plan. In this case, workers receive both a salary and a stipend. They can use the salary however they wish, but they usually have to use the stipend for its designated purpose, such as employee wellness or professional development.
Many companies offer monthly stipends, like Salesforce, which offers its employees a stipend of $100 per month. They can only spend it on activities that enhance their physical well-being, like massages, gym memberships, and subscriptions to mindfulness programs.
Salaries versus stipends: Key differences
No matter what it’s for, seeing a stipend on your new job offer is exciting. Everyone likes receiving perks. But before you accept, it’s important to understand the difference between a salary and a stipend and how the Internal Revenue Service (IRS) views them for tax purposes.
Here’s how to navigate the differences between salaries and stipends:
Purpose
Salaries are your compensation for the work you do every day, and you’re free to spend after-tax income on whatever you need. In contrast, employers designate stipends to defray the costs of specific activities. This often comes in the form of a reimbursement model, in which you have to show proof you spent the money on that activity.
Employer stipends can be as broad as the $1,000 allocation for health and well-being at cybersecurity firm Palo Alto Networks, which employees can use for anything from concert tickets to travel, or as narrow as Hinge’s $100 per month stipend for “epic dates.”
Taxation
Salaries are subject to taxes at the state and federal levels. Employers usually withhold these taxes by subtracting them from the employee’s regular pay, unless you’re a contractor or gig worker.
In general, stipends that cover living expenses aren’t wages in the eyes of the IRS, so employers don’t need to withhold tax. If you do receive a stipend, you have to report it on your taxes as taxable income. It usually falls under fringe benefits.
Legal minimum amounts
Salaries and wages are subject to minimum wage requirements at the federal and state levels, while there are no minimum amounts for stipends. Stipends range from very small to very large, from the $30 meal allowance for Goldman Sachs employees who work late to the $30,000 annual restaurant allowance for a restaurant critic position at JPMorgan.
Universality
As an employee, you can negotiate your salary individually with your employer, and employers usually manage raises individually as well. Salary ranges tend to connect to your performance and market value and can increase gradually over time.
Stipends, in contrast, are fixed sums that apply across the board. They don’t depend on performance or on the number of hours you worked, though there may be minimum thresholds to meet for eligibility, such as being a full-time employee. A high-performing employee and a struggling one will receive the same amount.
8 types of stipends
Along with compensation and benefits like healthcare plans and 401k matching, you might look for stipends on new job postings. But they come in a wide range of forms, which makes them difficult to look for and seek out. Here are eight different types of stipends you might come across and how to navigate each one:
1. Graduate stipends
Many universities pay stipends to students in advanced degree programs so they can afford to focus on school. The purpose of these stipends varies by program, but usually aims to cover cost of living.
In terms of taxation, there’s only a subtle distinction between a graduate stipend versus salary. Fellowship stipends are considered taxable income, so a recipient may need to pay taxes on that stipend at the end of the financial year.
This is because they don’t count as wages. But graduate students often do paid teaching or academic research work and receive regular wages for that work, which, like a salary, will likely have taxes already removed.
2. Internship or apprenticeship stipends
Companies who are training apprentices or interns sometimes don’t offer direct compensation for the hours they work. But they may provide financial support via a stipend. Interns working with members of Congress receive a maximum stipend of $1,800 per month.
3. Expense-related stipends
Expense-related stipends pay back any costs you could encounter as part of a job, like meals, travel costs, and expenses for creating a work-from-home setup. 37signals offers employees a $200 monthly stipend if they want to rent a coworking space, and Calm.com offers a work-from-home stipend for all employees.
4. Wellness program stipends
Many employers have wellness stipends as part of the types of benefits they offer. These consider specific wellness activities, such as gym memberships, or a wider range of activities that support physical and mental fitness. Adobe employees can use their annual $600 wellness stipend to pay for gym memberships, fitness tracking equipment, and more.
5. Health insurance stipends
Health insurance stipends are payments that assist with the costs of independently purchasing health insurance, which you might have to do if your employer doesn’t offer a group plan. Keep in mind that if you do receive a health insurance stipend on top of your regular salary, you might need to pay tax on it, which can reduce its value significantly.
Insurance stipends are still beneficial perks that reduce healthcare costs, even by a little.
6. Vacation or travel stipends
Some companies cover vacation and personal travel expenses as part of their employee value proposition. This could include company retreats or individual vacations, depending on the company.
Tech company FullContact offers a generous vacation stipend of $7,000 to employees who’ve been at the company for three years. And as a condition of receiving the stipend, FullContact requires employees to fully disconnect from work for the duration of their trip, saying that it forces employees to take a true break.
7. Continuing education or professional development stipends
Education and professional development stipends could cover books, online courses, and other eligible continuing education expenses. Web design tool company Balsamiq offers its employees $3,000 that they can spend on conferences, language classes, and volunteering activities.
The IRS classifies some continuing education expenses as tax-exempt fringe benefits, so check with your employer and the IRS to find out whether your benefits fall under this umbrella.
8. Family stipends
An increasing number of companies are offering employee stipends that cover family-related expenses. Companies like Spotify, Google, and LinkedIn provide between $10,000 and $75,000 for expenses related to egg freezing and fertility treatments.
Adobe offers adoption and surrogacy assistance up to $50,000. And dog walking platform Rover provides a $1,000 stipend to staff who adopt or foster a new pet.
Make informed choices about your compensation
Understanding the stipend versus salary distinction can be complex, especially when it comes to taxation. While they’re a great perk to look out for when job hunting, it’s good practice to make sure you have all of the relevant information before accepting an offer.
Whether you’re attending a conference, heading to the Bahamas, or growing your family, a stipend makes things a little easier on the bottom line. Even a small stipend amount could ultimately reduce financial stress and help you cultivate a healthy work-life balance.
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