Are stipends taxable? Everything you need to know in 2025

Are you wondering if stipends are taxable income? Unlike your salary, the answer here isn’t a simple yes or no.

Stipends are taxable in some specific instances only. It depends on the type of stipend and how it’s used.

Let’s dive into the details to help you understand the tax implications of stipends.

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Are stipends taxable?

Most stipends are considered taxable income by the IRS. This means that if you receive a stipend, you’ll likely need to report it on your tax return and pay taxes on the amount.

However, certain stipends may be tax-free up to IRS-designated annual contribution limits. To qualify for tax-free treatment, the stipend must be used for specific purposes, such as education or commuting expenses.

To make stipends tax-free, employers must establish an accountable plan and follow IRS guidelines. This involves setting clear rules for how the stipend can be used and requiring employees to provide documentation of their expenses.

Taxable stipends

• Wellness stipends: Stipends for gym memberships, fitness classes, or wellness products are considered taxable income.
• Remote work stipends: Stipends for home office equipment, internet service, or other remote work expenses are taxable unless they meet specific IRS criteria.

Tax-free stipends

• Commuter benefits: Employers can provide up to $300 per month tax-free for transit passes or commuter highway vehicles and up to $315 per month for parking.
• Education assistance: Employers can offer up to $5,250 per year per employee tax-free for educational expenses, such as tuition, books, and supplies.

How to calculate taxes on stipends

If your employer doesn’t withhold taxes on your stipend, you’ll need to calculate and pay the taxes yourself. Here’s how you can do that.

1. Determine the taxable amount: First, find out how much of your stipend is taxable. If you’re unsure, check with your employer or consult a tax professional.
2. Locate your tax bracket: Your income tax bracket is based on your total taxable income, including your stipend. The higher your income, the higher your tax rate.
3. Subtract your deductions: You may be able to reduce your taxable income by taking deductions, such as for charitable contributions or mortgage interest.
4. Calculate your income tax: Apply the tax rate for your bracket to your taxable income, including your stipend. This will give you the income tax you owe.
5. Set aside withholding or estimated tax payments: If your employer doesn’t withhold taxes from your stipend, you may need to make estimated tax payments throughout the year to avoid a penalty.

How are stipends taxed?

Stipends are a unique form of financial compensation intended to support specific activities or cover living expenses rather than serve as wages for employment. Despite their distinct purpose, stipends are often subject to taxation. 

Understanding how stipends are taxed can help recipients manage their finances and comply with tax regulations. Here’s a detailed look at how stipends are treated for tax purposes:

1. Stipends as taxable income

In most cases, stipends are classified as taxable income by the U.S. Internal Revenue Service (IRS) and must be reported on the recipient’s tax return.

Even though stipends may not be labeled as “wages,” they can still be subject to income tax, depending on how the money is used and the terms of the payment.

2. Taxation based on stipend usage

The taxation of a stipend often depends on its intended use:

• If the stipend is used for qualified education expenses — such as tuition, books, or fees — it may be tax-free.
• However, if the funds are used for non-qualified expenses, such as rent, travel, or food, the stipend amount allocated to these purposes is considered taxable income.
• Stipends provided for general living expenses or personal use are typically taxable, as they are considered financial support outside of tax-exempt categories.

3. Reporting and withholding

Stipends may or may not have taxes withheld by the organization providing them. Recipients should inquire if any federal or state taxes are withheld.

If taxes are withheld, recipients may receive a W-2 form, similar to traditional wages. If no taxes are withheld, a 1099 form or no form may be issued, requiring the recipient to report and pay taxes directly. In some cases, stipends must be self-reported even if no documentation is provided by the payer.

4. Self-employment tax

If a stipend is provided in exchange for services, such as teaching or research, it might be classified as self-employment income.

This means recipients may owe self-employment taxes, including Social Security and Medicare contributions.

5. International students and tax treaties

For non-residents or international students, tax treatment can vary based on tax treaties between the recipient’s home country and the U.S. Some treaties may exempt stipends from taxation entirely or partially.

6. Estimated taxes and deductions

If taxes are not withheld, recipients may need to pay estimated taxes quarterly to avoid penalties at year-end. It’s important to keep track of how stipends are spent so it’s easy to identify deductible expenses, particularly for education-related stipends.

7. Exceptions and special circumstances

Certain programs, such as those offered by nonprofit organizations, government entities, or religious groups, may provide stipends with specific tax exemptions or reduced tax obligations. It’s essential to review the terms of the stipend and consult applicable tax laws.

What types of stipends are taxable?

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Stipends come in various forms, serving different purposes such as supporting education, research, or volunteer work. While some stipends may qualify for tax exemptions under specific conditions, many are considered taxable income by tax authorities like the IRS.

Understanding which types of stipends are taxable can help recipients comply with tax regulations and avoid unexpected liabilities. 

Below is a breakdown of the types of stipends and their tax implications.

1. Wellness and lifestyle stipends

Wellness and lifestyle stipends are designed to support employees’ overall well-being and personal interests. These stipends are:

Taxable if

• Used for general wellness activities such as gym memberships, yoga classes, or recreational hobbies.
• Allocated to lifestyle expenses unrelated to work performance or mandatory benefits.

Non-taxable if

Rarely non-taxable unless explicitly tied to qualified wellness programs that meet tax-exempt criteria.

2. Professional development stipends

Professional development stipends are provided to employees for career growth and skill enhancement. These stipends are:

Taxable if

• Used for non-work-related activities such as personal hobbies or unrelated certifications.
• Allocated toward expenses that do not directly benefit the employer or align with job requirements.

Professional development stipends are non-taxable if used for qualified work-related education, such as training, conferences, or certifications that enhance job performance or are required by the employer.

3. Employment-related stipends

Employment-related stipends cover specific work needs, such as remote work setups or commuting expenses. These stipends are:

Taxable if

• Used for discretionary expenses not directly tied to job performance, such as home office décor or personal commuting preferences.
• Allocated to activities or purchases beyond the employer-defined scope.

Non-taxable if

• Used for qualified expenses, such as commuting benefits under IRS guidelines (e.g., transit passes or parking).
• Allocated for mandatory work-related tools and equipment that are business necessities.

4. Living allowance stipends

Living allowance stipends are paid to cover basic living expenses, such as housing, utilities, and food. These stipends are taxable, as they are considered financial support not tied to specific tax-exempt activities.

5. Educational stipends

Educational stipends are commonly awarded to students, interns, or trainees to support their academic pursuits. Their taxability depends on how the stipend is used:

Taxable portions

If the stipend covers non-qualified expenses, such as room and board, transportation, or personal expenses, it is taxable.

Non-taxable portions

Stipends used for qualified education expenses—including tuition, books, and mandatory fees—may be exempt from taxation.

6. Fellowship and research stipends

Fellowships and research stipends are often provided to individuals conducting academic or professional research. These stipends are:

Taxable if

• Used for general living expenses, such as rent, meals, or travel unrelated to the research project.
• Provided in exchange for services (e.g., teaching assistant duties or administrative tasks), as this is considered compensation for work.

Non-taxable if

• Funds may be non-taxable if they are used exclusively for project-related expenses or qualified educational purposes.

7. Internship stipends

Internship stipends are typically taxable since they are viewed as compensation for work performed during the internship:

• These stipends are treated like wages, even if they are lower than standard salaries.
• Taxes may be withheld, and the intern will likely receive a W-2 form for tax reporting.

Stipend vs salary: What’s the difference?

While stipends and salaries may seem similar, they have distinct differences in terms of how they’re paid and taxed.

• Stipends are not considered compensation for work: Unlike a salary, which is a set amount paid for work performed, a stipend is monetary support for expenses or training. Stipends are often used to cover costs like living expenses, travel, or education.
• Stipends are typically lower than minimum wage: Because stipends are not regulated by the state, they can be lower than minimum wage. Employers have discretion over the amount of the stipend and how it’s paid.
• Stipends are often paid in addition to a salary: In some cases, you may receive a stipend on top of your regular salary. For example, if you’re required to travel for work, your employer may provide a travel stipend to cover your expenses.

The difference between stipends and salaries can impact how they’re taxed.

While salaries are always considered taxable income, stipends may be tax-free if they meet certain IRS criteria. However, most stipends are taxable and must be reported on your tax return.

Here’s how stipends and salaries compare side by side:

How to administer compliant taxable employee stipends

If you’ve decided to offer taxable stipends to your employees, it’s important to administer them correctly to remain compliant with IRS regulations.

• Determine the value of fringe benefits by January 31: Employers must calculate the total value of taxable stipends paid out to employees by January 31 of the following year. This amount should include all stipends provided, such as wellness, health, or remote work stipends.
• Choose a method for tax withholding: Employers have two options for handling taxes on taxable stipends. The first is to provide employees with a 100% reimbursement and then withhold taxes later on their W-2 using imputed pay. This means adding the stipend amount to the employee’s taxable income and withholding taxes accordingly. The second option is to treat the fringe benefit’s value as a bonus for the payroll cycle and withhold all applicable taxes immediately.

Understanding what a stipend is and how it works is key to designing a compliant and effective stipend program. Stipends can be a valuable tool for attracting and retaining top talent, but it’s crucial to follow IRS guidelines to avoid penalties and ensure your employees are properly compensated.

Contact Forma today for more advice on offering stipends

Ultimately, stipends can be a worthwhile investment for employers looking to attract and retain top talent, boost employee satisfaction, and support a positive company culture.

By carefully designing and managing your stipend program, you can reap the benefits while minimizing the risks.

Navigating the complexities of stipends and their tax implications can be challenging. Forma simplifies this process for you, ensuring your stipend programs are compliant and beneficial for both you and your employees.

_{*This document is for informational purposes. Forma is not engaged in the practice of law. Nothing contained herein is intended as tax or legal advice nor to replace tax or legal advice from counsel. If you need tax or legal advice, please consult with counsel or a certified tax professional.}