Updated Apr 2, 2025

What is a Stipend?: Discover its Meaning, Benefits, Types, and Tax Implication

Stipend

In today’s competitive marketplace, recruiting and retaining the top talent for your business is paramount. Considering the latest recruitment trends, the stipend has come out as one of the useful additions to bolster competent interns and staff members.

This financial aspect might look intuitive but includes a broader meaning and attributes that you should know before considering it. A good stipend can attract top talents and make hiring easier for the employers.

So, without any further ado, let’s dive straight into this blog post and explore what a stipend is from scratch, along with its purposes, benefits, and how it differs from a regular salary.   

What is a Stipend? How Does it Work? 

Stipends are a specific type of compensation that an employer hands over to its temporary employees to cover the basic cost during their training session. 

Accordingly, business owners grant financial assistance for various reasons, considering covering the cost of living (rent, utilities, and food), healthcare perks, travel expenses, home-office upgrades, and many more. In some cases, companies also seek accounting services to ensure proper financial management of such expenses.

This type of stipend pay is also known as the allowance, and it is generally handed out on a daily, weekly, semi-monthly pay, or monthly schedule. Proper tracking of stipend payments can be streamlined with accounts payable services to ensure timely and accurate disbursements.

Moreover, in some exceptional cases, the company may offer stipends as an additional add-on to the regular salary of their employees.

But notably, some assistance payments are subject to taxable income, which means the receiver is responsible for their taxes only if the issuer hasn’t deducted them already. 

Common Benefits of Stipend

Multiple companies have generated a notable success rate from the stipend program. Along with this, organizations are actively introducing numerous incentive programs to target talented applicants progressively.

Conversely, as an employee, you can attain the below-mentioned benefits from these programs set up by your employer. 

  • Lighten the Financial Burden: The primary benefit of the stipend is to lessen your financial stress by lending efficient funds to support your expenditures, ensuring you concentrate on your studies and work-related training.
  • Access to Higher Qualifications: Joining a company that contributes financial assistance for education purposes is beneficial for those who can’t afford advanced studies or candidates who want to continue their post-graduation along with their jobs. 
  • Upgraded Career Development: Stipends can foster your professional skills and career progress by taking care of the liabilities associated with certifications, training, and other activities that focus on advancing your abilities. 

Apart from these benefits, stipends also assist in maximizing your productivity along with other perks, such as health insurance, commuting, and overall better job satisfaction and retention. 

5 Significant Types of Stipends

Unlike traditional payouts, stipends are a customized approach that empowers employees to invest in the area of their lives where they truly need to. 

Therefore, these allowances are designed to make the working atmosphere comfortable and productive in various spheres such as education, healthcare, accommodations, and technology. 

Here, we have highlighted some common types of stipends that can play a vital role in improving the employee’s life. 

Health Care Stipends 

A health care stipend refers to an extra amount added to the paycheck of an employee with the intent to cover their health care needs. 

In this procedure, employees have complete freedom to select the health insurance plan or other medical expenses according to their financial aspects and requirements. 

Lastly, employees might get these wellness funds through companies in the form of payroll or by Health Reimbursement Arrangements (HRA).

Education Stipends 

Education stipends are an allowance in which the company generates the funds to assist in covering the education expenditure. For instance, tuition fees, books, workshops, online courses, and the rest. 

To claim this education assistance, an employee should pursue the relevant educational course that aligns with their role within the company. In return, an employer may require the employee to be in the organization for a certain time after completing the course. 

Cell Phone Stipend

The employer assigns a cell phone stipend to manage the cost of mobile usage for the work purposes of the employee.

Most companies also establish unique guidelines that highlight the necessary expenses, such as data packages, hardware, and service packages.

Employees would probably attain the cell phone stipends in a monthly or annual settlement. They can use it to pay for the plans, services, uninvited repairs and more. 

Remote Work Stipend

The companies allocate remote work stipends to support the employees who do their work from non-office locations. This will assist them in covering the cost of the resources that they require for work purposes and create a healthy and productive remote work atmosphere. 

But, remote work stipends are only given to those who completely perform their job from a different locality, or to those who work from home for the maximum number of days per week.

Transportation Stipends

Transportation stipends are the definite amount funded to the employee to pay for the cost of travel to and from work. This may consist of, parking, public transit, gas, or sharing ride expenses. 

This stipend can lessen the employee commute burden and improve their job satisfaction and retention. Employees can acquire transportation stipends in a monthly amount or as a one-time payment settlement. 

In essence, the aforementioned are some common examples of allowances that the majority of organizations hand out to their employees. 

Along with these, research assistance, meal allowances, and office furniture are some additional stipends provided by the employer to their employees. 

Stipend vs Salary: What Should You Choose?

Many of you confuse stipends and salary together. However, they both indeed consist of identical characteristics, yet they are entirely separate and play distinct and vital roles at their places. 

Examine the given table to know the varying attributes of the respective terms. 

Stipend vs Salary
AttributesStipend  Salary 
Definition This form of compensation is paid to a certain individual to cover the basic cost while they receive the training under the organization. A fixed amount that is paid by an employer to an employee for their work is generally mentioned as the annual figure and paid monthly. 
Purpose Offers financial support to enhance training and learning and offset other basic expenses. Compensation for service delivered, indicating the employee’s position in the company. 
Eligibility Interns or part-time team members.  Full-time employees.
Tax Implementation Partially taxable. Complete taxable. 
Who gets it Interns, apprentices, researchers, and many more. Only employees. 

After thoroughly reviewing the above-mentioned specifications of the stipends and salary, you have surely understood how there is a vague line between the two that sets them apart. Well, no matter if you are receiving a salary or a stipend, you will get your payslip for that. 

Different Tax Implications on Stipend Pay

According to the Internal Revenue Service 15-B, the stipends are subject to taxable income. Still, it depends on various factors, for example, the type of stipends or the company terms and conditions. Whereas, stipends in the context of scholarships are tax-exempt. 

Hence, being an employer or an employee, understanding the nature of tax implications on specific stipends is important to make the most out of it. 

Determine the below pointer to know more. 

  • Taxable Stipends: All funds raised to compensate employee expenses in return for their services will be subject to income tax.

    For example, a house rent allowance (HRA) is a taxable stipend.

  • Non-Taxable Stipends: Financial assistance provided by the employer, intended to help the interns with the cost of education, will come under the non-taxable stipends. 

    For example, a professional development stipend or learning stipend is tax-exempt.  

Therefore, the nature, purpose, and payment method of the stipends will decide whether they are taxable or not.

Wrapping Up!

To wrap it up! As a graduate student or a newcomer in your field, choose the opportunity that comes with a suitable stipend. This will enable you to refine and build your skills while acquiring essential experience without stressing about everyday expenses.

Also, if you are an employer, practice introducing the latest innovative stipends in your company’s policy to retain highly competent and knowledgeable candidates for a long time. Now, when you are aware of both salary and stipend, it’s time to take control over your finances to manage them accordingly. 

Frequently Asked Questions
What does stipend mean?

A stipend is a particular type of compensation that an employer hands over to its employees to cover the basic cost during their training period. 

Are stipends taxable? 

The nature, type, and payment of stipends decide whether the stipends handed out by the employer are taxable or not. 

Which is a better option, a stipend or salary? 

A salary is a stable income option that enhances your future financial growth. Whereas stipends are particularly beneficial for acquiring initial skills and experience. 

Sources
Author - Veeramanchineni Lalitha
Veeramanchineni Lalitha

Finance Writer

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