How Stipends Work: Employers Don't Withhold Taxes, Still Taxable Income

Stipends are payments made outside of wages or salary, often to cover specific expenses. Stipends are taxable, but typically employers don't withhold taxes.

Kathryn Underwood - Author

Aug. 12 2022, Published 12:01 p.m. ET

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Whether you’re an intern gaining experience for a future career or receiving reimbursement for expenses not included in your salary, you could be receiving some sort of stipend. A stipend differs from a regular salary and wages in an important way: taxes aren’t withheld by the employer. Are stipends considered taxable income?

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Stipends are often a fixed, nominal amount of money provided to someone who isn't eligible to receive a set salary for work performed. Merriam-Webster defines a stipend as “a fixed sum of money paid periodically for services or to defray expenses.” Examples of stipends might include an allowance for interns or payments for wellness activities or education.

You do have to pay taxes on stipends.

Although employers don’t typically count stipends as wages, the recipient of a stipend will still need to pay taxes on the money, Investopedia notes. This means the burden of handling taxes on stipend payments falls on the person receiving it, rather than the person paying it.

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It’s a good idea to check with your employer to make sure you’re classified properly, whether as an employee or not. This can impact whether the employer withholds taxes from stipends. Working with a tax professional can help ensure you pay all required taxes, including those on stipends.

Stipends are often used as a form of other benefits outside of salary.

In a sense, stipends may be used to attract people to fields where additional salary isn’t possible. Stipends are often paid to people in lower-paying occupations, such as clergy or teachers.

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Companies may point to their stipends as not only a way to offset employee expenses, but as a way of identifying their values. For example, stipends to incentivize bike-riding rather than driving emphasize environmental concerns.

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Wellness and fitness incentives may include stipends for gym memberships and other health-related activities.

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Examples of types of stipends include research, training, wellness, or for specific expenses.

There are a few common types of stipends that you might be paid in various positions.

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  • Academic research: Stipends may be offered by organizations or third parties to individuals conducting research in specific areas.

  • Wellness: Wellness is another area in which some companies offer a stipend to employees. This may consist of payment or reimbursement for expenses related to gym memberships, personal trainers, or health coaches.

  • Job training: It isn't uncommon for employers to offer stipends to offset the cost of additional job training. This might cover the expenses of attending conferences, taking professional development classes, or earning certifications.

  • Specific expenses: Some companies and educational institutions offer stipends to offset specific expenses. For example, they might provide a transportation stipend to help enable someone to attend job training in a different town. As more companies expand work-from-home policies, they may add stipends for home office setup or internet service.

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Microsoft is one company with a wellness-related stipend. The company offers up to $1,200 annually in reimbursement for the employee to “get and stay fit physically, emotionally, and financially.”

Other types of stipends that you might come across from employers include stipends for adoption, housing, cell phones, student loan reimbursement, commuting, and even leisure travel.

These often depend on the specific company. For example, Rover offers up to $1,000 to help employees foster or adopt a pet.


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