Distinguishing Between Stipends for Training and Salaries/Wages for Student Compensation (2023)

Salaries & Wages

Financial assistance or support paid to university students; no work assigned.

Compensation for performance of assigned work.

Noscope of work.

Scope of work assigned.

No Workers' Compensation coverage.

Workers' Compensation coverage.

No requiredfringe benefitsor remissions.

Applicable UA employee fringe benefits and Tuition and FeeRemissionas appropriate based on eligibility.

Student-mentor relationship; no employer-employee relationship.

Employer-employee relationship.

Nograntand contract support unless the purpose of theawardis to provide fellowship or scholarship.

Can be paid from sponsored projects funds, and other internal funding sources.

Pay at the beginning of the quarter. No obligation to perform any assigned tasks or specific projects.

Pay based upon hours or percentage of time worked performing assigned job specific duties.

Selection based upon University policies that determine student's financial need or merit through competition.

Selection by the individualPrincipal InvestigatororLead Researcherbased on competency, skills, knowledge, and ability and coordinated with Human Resources.

Disbursed by Graduate Division. When supported by extramural awards made to UAF, administered jointly Office of Grants and Contracts Administration (OGCA) and the responsible unit or department.

Salary/wages disbursed by Payroll. When supported by extramural awards made to UAF, requires coordination with Office of Grants and Contracts Administration (OGCA).

Amounts based upon reasonable need or stipend limits set by the sponsor of the training or fellowship grant.

Amounts restricted by University salary scales.

A stipend is a periodic payment other than wages paid to a student in connection with educationally related activities undertaken by the student. Stipends may be paid in various forms. It can be an amount paid to a graduate, undergraduate, or postdoctoral student as a scholarship, fellowship, financial assistance grant, training grant, or other contribution to support educational or training expenses, including tuition, living costs and other incidental expenses.

Stipends are not compensation, and cannot be paid, for services rendered. A stipend is distinct from wages or salaries because it is not intended to compensate a student for work performed. Rather, it is intended to free up a student to undertake a role in connection with educational studies or research that would normally be uncompensated, without having to assume other compensated employment to pay his/her bills. Students usually receive benefits from the academic studies or research toward their education. For this reason, stipends are often paid to graduate students who are not required to report “hours” associated with the activities performed.

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Where similar work either is or is currently being paid to other students as wages, stipends are inappropriate. Work without a direct connection to a student’s educational studies or research is not appropriate for stipends. Stipends are not permitted to avoid wage and hour reporting requirements, overtime pay, or minimum wage requirements. Consequently, stipends may not be paid to students unless (1) the student’s activities related to the stipend are substantially unsupervised and (2) the hours in which the student performs the services are not easily tracked. For example, resident hall assistants, creative personnel in student media, student athletics team managers, perform activities intermittently and during irregular hours, fulfilling this requirement. In these circumstances, the amount of the stipend should nevertheless be determined in a manner to assure that the student receives compensation at or above the applicable minimum wage given a reasonable estimate of the amount of time that the student will dedicate to the activities. In addition, the reasonable estimate of the amount of time that the student will dedicate to the activities must be consistent with full-time student status, which is equal to no more than 20 hours of work per week during the school semesters.

Payment of stipends other than to students is not permitted. Additional compensation used to pay an employee (non-student) who is temporarily assigned responsibilities of a higher-level position will be considered “additional pay.”

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A scholarship is an amount provided for the benefit of a student to aid in the pursuit of studies. A fellowship grant is an amount provided for the benefit of an individual to aid in the pursuit of study or research. It is a form of financial assistance awarded primarily on the basis of academic achievement and vocational and professional objectives. Generally, graduate and post-graduate students are not required to render services to the school as a consideration of their awards or to repay them. Payments for qualified scholarships, as well as payments to non-degree candidates and for non-qualified expenses that are not made as compensation for services rendered.

Federal Guidance
OMB Uniform Guidance, Cost Principles (Subpart E)

No explicit guidance exists in the Uniform Guidance for the allowability of stipends, but the Cost Principles section does address student support. The only allowance for payments to individuals that do not represent compensation for services rendered appears in §200.466, Scholarships and student aid costs, which says such payments are allowable “…only when the purpose of the Federal award is to provide training to selected participants and the charge is approved by the Federal awarding agency.”

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Two sections of the Uniform Guidance Cost Principles (Subpart E), suggest that stipends should not be charged to research awards. First, §200.430 (Compensation - personal services) requires that amounts paid to individuals for their services on federal programs be documented, implying that payments to individuals which are not for services rendered should not be funded by research awards. Harvard’s effort reporting system does not include stipends, since these amounts do not represent compensation for work effort. Additionally, the Uniform Guidance Cost Principles for direct and indirect costs requires that the University include all modified total direct costs allocable to benefiting activities across its major functions in determining indirect costs. If funds used to support effort directly benefiting organized research are coded as stipends, these costs are excluded from the research base in violation of the federal cost principles.

National Institutes of Health

The National Institutes of Health Grants Policy Statement (Revised December 1, 2003) states explicitly that stipends are not allowable on research grants. This definitive statement appears twice in Part II: Terms and Conditions of NIH Grant Awards Subpart A: General; Selected Items of Costs. Under Salaries and Wages, it states: "Payments made for educational assistance may not be paid from NIH research grant funds even when they would appear to benefit the research project." Further, under the entry for Stipends, it states: "Stipends are not allowable under research grants even when they appear to benefit the research project."

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National Science Foundation

The National Science Foundation Grant Proposal Guide allows for stipends only in support of participant costs at conferences, symposia, workshops, or other specific training activities. In these cases, the scope of work should include a description of the training activity and NSF would have acknowledged that participant costs would be funded by stipends. NSF guidelines do not provide an allowance for payments to non-employees or non-consultants for activities that benefit a research award.

Given this clear guidance from NIH and NSF, University policy follows this guidance for all federal awards, regardless of agency.

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What is a training stipend? ›

Job Training Stipends

Some companies offer stipends to employees who wish to take additional training and classes that may assist them with their jobs and career development. The employee may enroll and pay for classes or additional training, for which the employer provides a reimbursement.

Is a stipend better than salary? ›

Stipends don't represent compensation for the work performed and are not considered wages or taxed as such. Salaries, on the other hand, compensate individuals for the services rendered and are subject to payroll taxes, as well as federal and state income taxes. Stipends are often lower than the minimum wage per hour.

Should stipends be paid through payroll? ›

Salaries are paid to employees on a company's payroll, while stipends are paid to offset certain expenses and employees who receive them are usually not on the payroll. Stipends may come with additional benefits like funding for room and board, whereas salaries do not.

What is the difference between compensation and stipend? ›

A salary is compensation you receive for the work you do for an organization, and it is given monthly and calculated yearly. A stipend, on the other hand, is not the compensation for work but rather monetary support provided by the company to help an individual with expenses incurred for living, food, and travel.

Is a stipend paid to a student? ›

In basic terms, a stipend is a fixed amount of money paid to an individual for a specific purpose, namely to cover expenses and/or living costs associated with work or study. Not to be confused with a salary, a stipend may only be offered in certain circumstances.

Can stipend be treated as salary? ›

When a stipend is paid as remuneration for services provided while gaining experience, it is considered as salary. Here, the objective of a stipend is not to meet education expenses but to compensate for the duties performed similarly to a full-time employee although it is generally lower pay than salary.

How are stipends reported to the IRS? ›

Stipends reported to you on a stipend letter are treated for tax purposes as taxable scholarships. Per IRS Publication 970, taxable scholarships and fellowships should be reported on the tax return as follows: Form 1040 – Line 1; also enter “SCH” and the taxable amount in the space to the left of line 1.

Are stipends taxed at a higher rate? ›

All fringe benefits, including stipends, are taxed at the employee's regular income tax rate, or employers can withhold 22% of the value.

Are stipends considered income? ›

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.

Is stipend exempt from income tax? ›

Companies usually pay stipends to interns. Since the interns are performing similar duties as regular employees of the company and also gaining valuable work experience at the same time, their income (stipend) will be subject to tax.

What is the difference between salary and wages? ›

Wages depend on how much time one spends on work and how much work is completed within that period. Salary is more like a fixed amount. This is the main difference between wages and salary.

Are college stipends taxable? ›

Stipends are generally taxable. IRS defines a stipend as a fixed sum of money paid periodically for services or to defray expenses. The fact that remuneration is termed a "fee" or "stipend" rather than salary or wages is immaterial.

What is the legal definition of stipend? ›

Stipend means a payment to an organization that is intended to help meet that organization's subsistence expenses for trainees during the training period.

What are the benefits of stipend for students? ›

The stipend usually covers the trainee's salary and basic living expenses, such as housing and food. Some training stipends cover other specific expenses, like transportation costs or medical expenses.

Why is the stipend given to students? ›

Stipends are a set amount of money given to an individual to help defray living expenses, such as room and board or other expenses related to the specific purpose for which the stipend is given.

Are stipends taxable IRS? ›

A scholarship/fellowship used for expenses other than qualified expenses is taxable income. Taxable scholarships/fellowships are generally referred to as stipends and are payments for which no services are rendered or required.

Do stipends show up on w2? ›

The IRS explains that your stipend may be reported on Form W-2 or Form 1099-MISC. You are responsible for determining whether you were paid as an employee or independent contractor and whether or not the income is subject to self-employment taxes.

Is a stipend earned or unearned income? ›

A stipend does not count as wages earned, so no Social Security or Medicare taxes get withheld. This means your employer will not withhold any taxes for you. However, a stipend does count as taxable income, so you will need to plan to set aside money for the taxes you will owe on your stipend at the end of the year.

Where do stipends show up on w2? ›

Keep in mind that money from a stipend isn't classified as 1099 or W-2 income, so don't report it in that way, or you could be taxed too much. A financial or tax professional can explain more, and you should be able to ask tax questions to the organization providing you with your stipend.

What is an example of a stipend policy? ›

Think of a stipend as an allowance for a fixed amount. For example, you might give your employees a $150 monthly stipend to help them with the costs of working remotely. You could also have a weekly travel stipend to help employees get around the city using public transport or a service like Uber.

Are tax free stipends reported on w2? ›

To use IRS jargon, this system is referred to as an 'accountable plan' because, as the name suggests, all the expenses are accounted for on the employer's books. Stipends paid under accountable plans are tax-free for both state and federal taxes and aren't reported on your W-2 at the end of the year.”

How are stipends usually paid? ›

Salary is mostly paid out on a weekly or bi-weekly basis. Stipends can be weekly, monthly, or even a lump sum amount for the period of work. A salary is subject to minimum wage laws.

How do you qualify for a stipend? ›

Stipend Eligibility
  1. The training must be predominantly for your own benefit, not the employer's.
  2. You can't be entitled to a job at the end of the training.
  3. You can't displace regular employees.
  4. You and the employer must both acknowledge that you aren't entitled to wages for training time.
May 11, 2021

What is a stipend from employer? ›

What are employee stipends? Employee stipends, sometimes called fringe benefits, lifestyle benefits, or lifestyle spending accounts, are a fixed amount of money offered to employees to help pay for work, wellness, living expenses, and so much more.

Are stipends reported as income? ›

Stipends reported to you on a stipend letter are treated for tax purposes as taxable scholarships. Per IRS Publication 970, taxable scholarships and fellowships should be reported on the tax return as follows: Form 1040 – Line 1; also enter “SCH” and the taxable amount in the space to the left of line 1.

Does a stipend require a 1099? ›

The IRS explains that your stipend may be reported on Form W-2 or Form 1099-MISC. You are responsible for determining whether you were paid as an employee or independent contractor and whether or not the income is subject to self-employment taxes.

Is a stipend taxable income IRS? ›

A scholarship/fellowship used for expenses other than qualified expenses is taxable income. Taxable scholarships/fellowships are generally referred to as stipends and are payments for which no services are rendered or required.

Are educational stipends taxable? ›

How is stipend or fellowship income treated for tax purposes? Both are usually tax-exempt, as long as you use the money for tuition, fees, books, supplies and equipment required for enrollment and in the pursuit of a degree.

Do stipends count as income for fafsa? ›

A student reports only the amount of grants and scholarships received that was reported as taxable income on the return. This includes grant and scholarship (not employment) portions of fellowships and assistantships, as well as taxable stipends and employer tuition reimbursements.

Is it legal to deduct stipend? ›

An employer may not make any deduction from a learner's remuneration or require a learner to repay any amount, in respect of any tools, materials, equipment, protective clothing, uniforms, or training material required for the purposes of the learnership.


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