What expense category is Stipends for Program Participants?

Many nonprofit organizations, particularly those involved in research, community engagement, or workforce development, provide stipends to individuals who participate in their programs. These small payments are often used to cover travel, meals, or other minor costs, or simply as an incentive for participation.

While these stipends are a direct cost of running a program, their tax treatment can be a source of confusion. It is critical for accountants and nonprofit leaders to understand that these payments are generally considered taxable income to the recipient and come with specific tax reporting obligations for the organization. This guide will clarify how to categorize these costs and the important IRS rules you must follow.

Stipends for Program Participants Category

For a nonprofit organization, stipends paid to individuals to enable their participation in a program are a direct Program Expense.

While the provided IRS documents focus on for-profit businesses, they establish the principle of deducting ordinary and necessary expenses. For a nonprofit, payments that are essential to carrying out its mission—such as providing a stipend to a participant in a research study—are a primary program-related expense. They are not wages or charitable grants.

Important Considerations While Classifying Stipends for Program Participants

The most critical factor is to correctly identify the recipient as a non-employee and to fulfill the associated tax reporting requirements.

Participant vs. Employee

It is essential to distinguish between a program participant and an employee.

• Program Participant: An individual receiving a stipend for their participation. The payment is not for services rendered as an employee.
• Employee: An individual paid for services under your direct control. Their pay is a Wages expense and must be processed through payroll.

Taxability to the Recipient

A stipend paid to a program participant is generally considered taxable income to that individual. It is not a gift. The recipient is responsible for reporting this income on their personal tax return.

Information Reporting on Form 1099

This is a crucial compliance step. The principles outlined in IRS Publication 334 regarding payments for services to non-employees can be applied here. If you pay a program participant $600 or more during the year, you are generally required to report these payments to the IRS and the recipient, typically on Form 1099-MISC, Miscellaneous Information.

Tax Implications and Recordkeeping

Properly accounting for participant stipends is essential for accurate financial statements and IRS reporting.

How to Report the Expense

While the provided documents focus on for-profit tax forms, nonprofits have their own reporting requirements (such as the Form 990 series). On these forms, stipends paid to program participants are reported as a direct program service expense. This is a key metric used to demonstrate how the organization is using its funds to serve its constituents.

What Records to Keep

You must have documentary evidence to substantiate all stipend payments. Your records should include:

• The program documentation outlining the purpose and terms of the stipend.
• A completed Form W-9, Request for Taxpayer Identification Number and Certification, from each participant to facilitate 1099 reporting.
• A clear record of each payment made, including the date, amount, and recipient.
• Proof of payment, such as canceled checks or bank transfer records.

How Fyle Can Automate Expense Tracking for Participant Stipends

Fyle helps you manage and document all your program stipend payments, ensuring a complete and compliant record for tax and program reporting.

• Track Every Payment: Capture each stipend payment to create a clear and unalterable record of all disbursements.
• Centralize Participant Documents: Attach the signed program agreement and the participant's Form W-9 directly to their payment records in Fyle.
• Simplify 1099 Preparation: Fyle provides a clean, aggregated report of all payments to each participant, simplifying year-end 1099 filing.
• Automate Your Accounting: Sync categorized program expenses directly to the correct GL account in QuickBooks, Xero, NetSuite, or Sage Intacct.