How are stipends treated for tax purposes?


Quick Answer

A stipend, defined as money paid for services or paid to defray expenses, is reportable as income and subject to federal income tax, according to the Internal Revenue Service. If a stipend is paid to an employee for services performed, it is subject to federal employment taxes as outlined in IRS Publication 15 (Circular E), Employer's Tax Guide.

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Full Answer

All money received as income is subject to income tax unless it is specifically excluded by a tax law that defines the exclusion, according to IRS Publication 17. Stipends are not specifically excluded in the tax code and must be treated as income. In general, stipends are indistinguishable from salaries and wages and should be treated in a similar manner, explains the IRS.

One possible exception to the general rule would be a stipend that is paid to a student and is effectively the same as a scholarship, notes the IRS. The IRS Publication 970 notes a scholarship is nontaxable if it is paid to a degree candidate at an eligible institution, if it is not in payment for teaching or research services rendered, and if it is used solely to pay for qualified educational expenses such as tuition. If a stipend meets all the same conditions as a nontaxable scholarship, it is not subject to income tax.

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