What Is a Stipend?

A stipend is a payment made to a trainee or learner for living expenses, unlike a salary or wages which are paid to an employee. Though the terms "stipend" and "salary" are often used interchangeably, the U.S. Department of Labor has specific criteria that must be met to pay a stipend.

Stipend Eligibility

To receive a stipend, the job must focus on training rather than employment, says the University of Washington. The training must be predominantly for the benefit of the student, not the employer, and the student can't be entitled to a job at the end of training; the student also can't displace regular employees. Finally, the student and the employer both acknowledge that the student isn't entitled to wages for training time.

Minimum Wage Not Required

If you meet the requirements to be considered a trainee rather than an employee, the amount of the stipend is at the employer's discretion. You do not have to be paid at least the minimum wage per hour worked.

Tax Withholding

If you are paid a stipend, it isn't considered wages so you won't pay Social Security or Medicare taxes on it. But, it still counts as taxable income for income tax purposes. However, your employer won't withhold any income taxes from the stipend. So, you need to set aside some of the money to pay the taxes you owe at the end of the year.

Beware Misclassification

If you are working for an employer, rather than in a trainee or student position, make sure your payments are classified correctly. If you should be classified as an employee, you're eligible for the minimum wage as well as overtime pay, which entitles you to 1.5 times your normal hourly rate for any hours worked over 40 in a given week.

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