Has an organization or university offered you an opportunity with a stipend? Whether it’s an internship or apprenticeship, a stipend is a set amount of money that helps offset living expenses. This fixed amount is financial support provided while you’re engaged in a service or contributing to a project. It may be paid in a lump sum or in smaller increments.
Understanding what a stipend is and what taxes you might owe will help you plan better for the exciting opportunity ahead.
What is a Stipend?
A stipend is a fixed amount that’s paid to an individual to offset expenses. Common recipients include interns, graduate assistants, fellows, clergy, apprentices, and public servants—typically those who are not eligible to be paid a regular salary. Different than a salary, a stipend isn’t compensation for a certain amount of hours or tasks, but to recognize a service performed. The amount is generally lower than a salary, but the recipient is often able to gain substantial experience. Other benefits might also be provided, such as room and board or a tuition waiver.
Companies, schools, and organizations provide a stipend as a way to include a valuable person in their initiatives. For example, a company might not have the funds to pay an intern an hourly rate, so they offer a stipend. As another example, a researcher at an academic institution might be offered a stipend in exchange for their help on a project.
Smaller stipends are sometimes offered to defray specific costs, like buying a computer. As an example, a monthly $75 gym stipend allows the individual to pay for a membership of their choosing.
Do I Have to Pay Taxes on a Stipend?
It’s likely you’ll have to pay some taxes on a stipend. The amount put towards qualifying educational expenses aren’t taxable and don’t need to be reported to the IRS, but the remaining amount does. For example, if $1,000 of a stipend goes toward tuition and books, and $2,000 goes toward room and board, only $2,000 is taxable.
Because stipends are awards and not wages for services, Social Security and Medicare taxes are not withheld. Stipends are still considered taxable income, though. It’s important to note that recipients of a stipend are not self-employed so you don’t need to pay self-employment taxes.
Employers aren’t required to withhold taxes on a stipend, so you should maintain records of what you receive throughout the year. Having records of your stipends will make filling out your taxes easier.
Stipends paid to non-resident aliens with a visa, such as an F-1, J-1, M-1, or Q-1 visa, are subject to U.S. income tax unless you qualify for a tax treaty relief.
How to Report a Stipend on Your Tax Return
Whether you use tax software, physical forms, or a tax preparer, ensure your stipend gets recorded. Your stipend may also be referred to as a taxable scholarship, non-qualified scholarship, non-qualified fellowship, taxable fellowship, taxable grant scholarship, or another similar phrase.
Per IRS publication 970, report your stipends on:
- Form 1040EZ – Line 1; also enter “SCH” and the taxable amount to the left of line 1
- Form 1040A and Form 1010 – Line 7; also enter “SCH” and the taxable amount to the left of line 7
- If you’re a non-resident alien, stipends reported on a Form 1042-S with income code 16 in box 1 are taxable. The gross income from box 1 must be reported on Form 1040-NR line 12, and federal tax withheld from box 7 should be reported on line 62d.
Your stipend should not substitute a W-2 or 1099 income. Those income types are taxed differently than stipends and could cost you more. If you’re unsure how to report your stipend, seek help through your tax software or consult a professional tax preparer.
Difference Between a Salary and a Stipend
The terms salary and stipend are often used interchangeably, though there are some key differences. Before accepting or negotiating a stipend, here’s what to know.
- Compensation that’s paid to an employee
- Payment for services or hours worked
- Must follow minimum wage laws
- Paid to employees, typically weekly or bi-weekly
- May increase over time based on performance or fair market value increases
- Fixed amount paid to trainees, public servants or clergy
- Not dependent on services rendered
- Not subject to minimum wage requirements
- Paid to interns, fellow apprentices, clergy
- Fixed rate for a specific duration of time (i.e. one year or one semester)
- Sometimes taxes
Whether you’re offered a salary or a stipend, keep in mind the position’s other benefits. For example, an apprenticeship might give you the opportunity to train under an expert in your trade. A graduate assistant job might provide you with some tuition coverage. Based on your years of experience and career goals, a position with a stipend might be a great opportunity.
Can You Negotiate a Stipend?
You can negotiate a stipend. Depending on the situation, the organization may or may not offer you an increase.
When you negotiate a salary or stipend, it’s helpful to bring numbers to the table. It lets the other party know you’ve done your research and you have a concrete reason for asking for more.
First, you can look at similar positions and review what their stipends are. If other positions are offering more, consider asking for that amount. Second, you should estimate living expenses to decide if the stipend is enough. For example, if Jessie is offered a $10,000 stipend for a yearlong assignment, she needs to know much housing, groceries, transportation, and other basic expenses will cost in the area she’s living. If living expenses will cost her $13,000, her stipend won’t cover everything, and she can explain that in her negotiation.
When asking for a larger stipend, be sure to show appreciation for the opportunity. Explain what you’ve found through your research and state the amount you’ll need to accept the opportunity. In some cases, the organization might be able to offer an increase, but not always. They might not be able to raise the stipend due to their budget or a certain grant that you’ll be working under. If the stipend amount can’t be raised, consider asking for other benefits like room and board or tuition credit. You can also look into taking out a loan or working a second job. Overall, you want to find an arrangement that works for you and the organization.
Before making a final decision, consider all the pros and cons of the offer. Reach out to someone in your field to help you make a decision.
As you plan for life with a stipend, budget for your living expenses and consider the taxes that you’ll owe at the end of the year. Career opportunities with a stipend are often exciting times to learn, grow and advance your career.