Introduction
Many organizations hire interns, trainees or volunteers as required considering their operation and activities and pay them a fixed amount on a regular basis or as a one-time payment. The payment is typically made as a financial support to cover recipient’s basic costs associated with the work. For the organizations that pay stipends, the question is whether the stipend paid is taxable in Afghanistan. This article helps to understand if stipend is taxable and how tax is calculated on stipend.
What is Stipend?
A stipend is a fixed, regular payment made to individuals, typically to support them while they are engaged in certain activities, such as internships, volunteering, education or research. Stipends are often used to help cover basic costs, such as transportation to and from the office. In other cases, stipends may simply provide a remuneration package that may cover living expenses, travel, materials and other costs associated with the activity being supported.
Is Stipend Taxable?
According to the Public Ruling 1384-6, salary and wages include all types of payments and benefits that are a reward for services provided. The scope of what constitutes salary and wages is broad. It is intended to include all types of remuneration without regard to its form or legal nature.
Given the nature of stipend, it is a basic remuneration package or a payment and benefit to the recipient that is a reward for services. Therefore, stipend is considered taxable income to the person receiving it and is thus subject to wage withholding tax. Please also refer to Quest’s post “Which kind of benefits are part of taxable salary and wages?”
How is Tax Calculated on Stipend?
Stipends are considered to be salary or additional salary to the recipient. Tax on stipends is calculated based on the wages withholding tax rates. In case stipend is paid in addition to salary, the organization must add the amount to the employee’s salary to determine the gross taxable salary and withhold tax accordingly. To learn more on how to manage salary withholding tax please click here and scroll down to section 2.1 Salary Withholding Tax.