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The art of incentivizing employees has been at the crux of management for centuries. Figuring out what exactly excites and motivates the people that work for you is a practice that attempts to optimize productivity by aiming for above-average assignment output.

There have been many experiments in the past to see which mode of incentivization is the most efficient with varying results. However, commonality was found in the intended results according to The Business Journals, “[incentives] boost profitability, reward the best workers, support business values, improve teamwork and morale, and attract (as well as retain) top talent.”

With many different forms of incentives to entice the worker to perform at an accelerated level, a plethora of research papers and essays could be written (and most likely have been). For the purpose of this blog, we’ll specifically look at the world of stipends. A few questions will be addressed like, what they are, how they can be used, and if they are taxable.

To Start, What Is a Stipend?

To put it simply, a stipend is a payment given to an employee in addition to their salary. An employee can typically earn this if they worked outside of their usual job responsibilities or even on a side project.

Stipends can also be given to an employee to cover living necessities while away from work or home on a business trip. In some cases, stipends can be used instead of petty cash.

Other Uses Than Incentives

Stipends can be used for more than the incentivization of your employees, there are numerous other practices they can be applied to:

  • Family health care programs for employees
  • Courses, training, and budgeting courses for professional development
  • Travel expenses for business trips (lodging and meals)
  • Cell phone stipends for sales staff and employees on business trips
  • Health insurance stipends for remote employees who are based abroad
  • Scholarships and living allowances for medical professionals like physicians, dentists, nurses, and veterinarians
  • Cost of housing while students and researchers are in academic programs

Are Stipends Taxable or Not?

This can be a tricky question. Although stipends do not have Social Security or Medicare taxes withheld, they can still be considered taxable income. They may be vulnerable to taxation if they were earned for jobs outside of your place of business. You will be required to report stipends on either your W-2 tax return form or your 1099-MISC form.

Social Security and Medicare taxes are not withheld on stipends because they are considered rewards, not wages for services. Come tax season, it is best to consult with your tax team or professional to double-check whether or not your need to report your stipends earned.

The IRS can be a confusing service to deal with, so no matter if your stipends end up being taxable or not, it is very important to have clear documentation of everything. Nobody wants to be at the other end of an audit.

They End Up Being Taxable? No Problem

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