What Is a Stipend? How It’s Different From a Salary

What is a Stipend? How It's Different From a Salary

When it comes to career development, you’ve got options. Training programs, boot camps, and internships (no matter your age) can help you gain the skills you need to launch your career or start a new one. The thing about these options, though, is that you might have to quit your day job to do them. And while you might have money set aside, it may not be enough to make ends meet. 

That’s where stipends come in. These cash payments can help you cover your expenses while you learn new and invaluable skills. Here’s everything you need to know about stipends.

What Is a Stipend?

In general, stipends are small, fixed amounts of money given to offset expenses when you aren’t eligible for a regular salary, like when you’re an intern, apprentice, or teaching assistant.

A stipend helps pay for expenses while you gain valuable career experience. 

Some employers offer stipends as part of the fringe benefits package for their staff. These stipends also defray certain costs but are a perk above and beyond your regular salary.

How Do Stipends Work?

Stipends cover general living expenses, like food, housing, and travel. They can also be used for specific activities (like research) or to cover equipment (like a laptop).

Because stipends are not considered wages, they are not subject to the Fair Labor Standard Act (FLSA) rules on minimum wages. Depending on how many hours you work, your stipend could equal less than the required minimum wage per hour.

A stipend is often distributed like a paycheck in that you receive weekly, biweekly, or monthly payments. You may also receive a lump sum at the beginning or end of your work or training.

Stipends For Employees

Some employers offer stipends as part of their fringe benefits package. Like other stipends, these offset employee expenses. For example, your employer might offer a travel stipend to defray the cost of public transportation. Or, they could offer a stipend for a gym membership to encourage staff to stay in shape.

An employee stipend is different from an employee reimbursement. Reimbursement amounts vary based on what you spend, while stipends are a fixed amount set by your employer.

Are Stipends Taxed?

Yes and no. Because the IRS does not consider a stipend earned income, your employer does not have to withhold Social Security or Medicare taxes for you. However, depending on the specifics of your stipend, it may be considered taxable income, which means you may need to pay taxes on the total amount. This is true even if the stipend is part of your employer’s benefits package.

How Are Stipends Different From a Salary?

Stipends help you pay your bills while you learn and practice valuable career skills and are not meant to be a primary source of compensation. Because stipends are fixed amounts, you can never increase it no matter how well you perform your tasks.

A salary is payment in exchange for performing your job. It is meant to be your main source of compensation because you have the skills, education, or experience to do the work. While your salary is a fixed amount, you often have the opportunity to increase it through raises or cost-of-living adjustments. And because your salary is considered earned income, your employer must pay taxes on your behalf, and you must be paid at least the minimum wage.

A Little Help

Ultimately, a stipend is a bit of financial support to help you pay for living expenses while you grow and practice your new skills. Stipends may not be much, but they can help you cover costs while you take your career to the next level.

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