The HR leader’s guide to stipend pay: uses, tax rules, and best practices

By Laura Melchor●6 min. read●Apr 17, 2025

Managing all the ways money moves from your HR team to employees can feel overwhelming, even for the most seasoned leaders.

We’ll break down everything HR teams need to know about stipend pay — how it works, when to use it, and how it compares to other types of pay.

What is stipend pay?

Stipend pay is a fixed amount of money paid to someone for a specific purpose that isn’t tied to hours worked or productivity.

For example, an employer might offer a stipend to offset commuting costs, like gas or public transportation.

Stipends can also help cover costs like professional development, home office equipment, or gym memberships. Perks like these can help your employees feel cared for and valued, leading to improved retention.

To better understand how stipend pay is different from other types of compensation, like salaries or raises, here’s a breakdown of key differences.

Stipend:

Not tied to hours worked or job performance
Often used to offset costs (education, wellness, commuting, etc.)
Usually not subject to tax withholding — recipients are responsible for reporting it (more on that in a moment)
Typically lower in amount than a salary

Salary or wages:

Compensation is directly tied to job duties and hours worked
Subject to payroll taxes and withholdings
Includes employee protections and benefits (in most cases)
Reflects ongoing employment status

In short: a salary pays for work, while a stipend supports work-related costs.

This table helps make the differences clearer.

Stipend vs. salary Increases

Feature	Stipend	Salary Increase
Purpose	Supports specific expenses or needs	Compensation for ongoing job responsibilities
Duration	Temporary or one-time	Permanent
Flexibility	Highly flexible and customizable	Structured and standardized
Tax treatment	Usually taxable; often no withholdings by employer or company	Taxed through payroll with standard withholdings
Cost predictability	Easier to cap or adjust	Adds to long-term payroll costs
Employee perception	Seen as a perk or benefit	Viewed as recognition or advancement

Stipend pay vs. expense reimbursement

It’s easy to mix up stipends and expense reimbursements — but they work differently.

Expense reimbursements require employees to cover a cost upfront, then submit a receipt for approval. Once it’s reviewed, they’re paid back for what they already spent.

Stipends, on the other hand, are fixed payments given in advance to help offset certain costs, like wellness programs, remote work expenses, or commuting.

Who typically gets stipend payments?

While anyone can technically receive a stipend, they're most often used to help:

Interns or apprentices
Remote workers
Graduate students
Volunteers
Employees receiving specific perks (wellness, learning and development, and so on)

Stipend amounts vary widely, but they’re usually lower than a standard paycheck.

For example, Brown University offers PhD students a stipend of $49,012 for the 2024-2025 school year. To be eligible for the stipend, students can’t work more than 12 hours per week in outside jobs. These stipends aren’t meant to provide full wages — they’re designed to make it easier for students to focus on teaching and research responsibilities without needing a second job.

In a standard corporate business where there’s already a paycheck in play, a stipend is usually a lot smaller. An HR team might offer a $100 monthly stipend that employees can use toward gym memberships, wellness programs, travel expenses, or professional development. Other common types of stipends include health insurance stipends to help offset the cost of premiums, along with job training stipends.

These payments give employers flexibility while helping employees cover meaningful costs that aren’t always built into a salary.

The amount and frequency of a stipend usually depends on its purpose.

If it’s meant to cover a one-time cost, like a professional development course, a single fixed payment works best. If it’s used for recurring expenses, such as commuting or wellness, it may be issued monthly or alongside regular paychecks.

But when it comes to how stipends work from a payroll perspective, stipends actually share more similarities with regular pay than differences.

How stipends work

In a payroll department, stipends are usually processed through the same system used for regular pay. Even though stipends aren’t the same as a salary or hourly wage, they’re usually still taxable.

To avoid confusion, stipends are itemized separately on an employee’s pay stub. Rather than getting lumped in with wages or bonuses, they show up as their own line item. This helps keep things clean for accounting and simplifies tax reporting.

If the recipient is an intern or student, and especially if they’re not classified as an employee, the stipend may be processed outside of payroll entirely. In that case, it’s typically issued through accounts payable, and taxes aren’t withheld upfront.

Even so, the person receiving the stipend is usually responsible for reporting it as income when they file their taxes.

Which brings us to our next point: how are stipends taxed?

Tax considerations for stipend pay

Stipends might feel like informal perks, but they come with important tax implications.

According to the Internal Revenue Service (IRS), most stipends are considered taxable income, even if they aren’t paid out as compensation for services performed.

That said, don’t expect to find the word “stipend” in the IRS database.

Instead, you have to consider the context and approach of each type of stipend pay to know where to find information about it.

For business-related stipends, the IRS doesn’t use the word stipend; it refers instead to fringe benefits.

In the IRS Publication 5137, Fringe Benefit Guide, fringe benefits are defined as “a form of pay (including property, services, cash or cash equivalent) in addition to stated pay for the performance of services.” That definition closely aligns with how stipend pay typically works.

The guide offers detailed instructions on how to handle fringe benefits from a tax perspective — especially for employees. If your organization offers stipends, it’s worth reviewing the guide to understand your responsibilities. And consider working with a qualified tax advisor to ensure compliance.

A tax advisor can help you figure out if you are supposed to deduct federal, state, or FICA taxes upfront or if the burden falls to the employee or independent contractor.

For stipend pay in academic settings, the IRS provides some guidance in IRS Topic no. 421, Scholarships, fellowship grants, and other grants.

While the term stipend isn’t explicitly used, this resource explains the tax rules that may apply to certain types of educational payments. If a stipend is treated as a scholarship or fellowship and is used for qualified education expenses (like tuition or required course materials), it may be non-taxable.

However, if the funds are used for non-qualified expenses, such as housing or travel, they’re generally considered taxable income.

Who pays taxes on stipends?

The responsibility for paying taxes on stipend pay can fall on either the employer or the recipient. But in most cases, the employer is not responsible for tax withholding.

Here’s a quick guide for HR teams. But as always, make sure to consult a tax professional as you create your stipend pay policies and procedures.

➡️ Employee stipends

Who handles taxes?

The employer can choose to withhold or not withhold
If the employer does not withhold, the employee is responsible

Tax reporting:

Usually included in Box 1 of W-2

Common uses:

Remote work setup
Wellness benefits
Learning & career development

➡️ Non-employee stipends

(Interns, students, contractors)

Who handles taxes?

No withholding
Recipient is fully responsible

Tax reporting:

Reported on IRS Form 1099-NEC if over $600/year
Still taxable even without a form

Common uses:

Internship support
Research or fellowship funding
Volunteer stipends

International considerations for stipend pay

If you offer stipends to employees or contractors outside the U.S., your HR team will need to navigate local tax laws and employment regulations.

What qualifies as a non-taxable benefit in one country might be fully taxable in another. In some cases, regularly giving stipends to an international contractor could accidentally make them count as a regular employee in that country. Or, it could create a business presence that brings you unexpected legal or tax obligations.

As you build out your international stipend programs, keep the following in mind:

Local tax rules: Stipends may be subject to income tax, social contributions, or reporting requirements.
Employment classification: In some countries, providing recurring stipends could reclassify a contractor as an employee.
Currency and exchange rates: If you're paying in local currency, budget for conversion costs and fluctuations.
Legal compliance: Make sure your stipend program complies with local labor laws, including limits on benefit types or caps on non-salary compensation.

Pro tip: To stay compliant and avoid surprises, it’s a good idea to work with local legal or payroll experts when managing stipend pay abroad.

How HR teams use employee stipends

More HR teams are turning to stipends as a way to support employee needs — without making long-term changes to base compensation.

You can use stipends to help support your employees' well-being and offset the costs that come with being a part of today's modern workforce.

Unlike raises, which permanently increase an employee’s salary, stipends give extra support for a limited time or specific purpose. That said, it shouldn’t replace a well-earned raise or promotion.

Stipends are best used as a complement to core compensation, not a substitute for career growth.

Instead, consider stipend pay as part of an employee benefits package. Research shows that when employees have multiple pay incentives, their motivation and productivity improve. That’s why incentives like stipend pay can pay off — big time.

Key takeaways

TL;DR? Here’s what to know about stipends:

Stipends offer HR teams a flexible way to provide financial support for things like living expenses, healthcare, commuting, and wellness — without making long-term changes to base pay.
Most stipends are taxable, even if employers don’t withhold taxes at the time of payment.
Clear documentation and communication are critical, especially when it comes to who’s responsible for reporting and paying taxes on stipend income.
It’s a good idea to partner with legal and tax advisors to ensure compliance, especially when offering stipends to international employees or contractors.