Indirect costs (also called overhead, administrative, or facilities and administrative costs) are real expenses that keep your organization running but cannot be tied to one specific program or grant — rent, accounting, your executive director's time on operations, insurance, IT, and audit fees. Direct costs can be traced to a specific award: the salary of a program coordinator, supplies for a workshop, travel for a site visit.
Federal grant rules let you recover a portion of indirect costs in two ways. Either you negotiate a NICRA (Negotiated Indirect Cost Rate Agreement) with your federal cognizant agency, or — if you have never had a negotiated rate — you can elect the de minimis rate without any negotiation or documentation. As of 2026, that de minimis rate is up to 15% of Modified Total Direct Costs (MTDC), raised from the long-standing 10% effective for awards made on or after October 1, 2024 (2 CFR 200.414(f) — verify against the current eCFR text).
The short version
- De minimis rate is up to 15% of MTDC — no negotiation, no paperwork, usable indefinitely (as of 2026 — verify).
- MTDC is not your whole budget: it excludes equipment, capital, the portion of each subaward over $50,000, participant support, rent (in some bases), and more.
- You can elect any rate from 0% up to 15% — but charge a cost as direct or indirect, never both.
- A NICRA usually beats the de minimis rate only once your true overhead clearly exceeds ~15% and the awards are large enough to justify the effort.
Direct vs. indirect costs
The first job in any grant budget is sorting every cost into one of two buckets. A direct cost is something you can specifically identify with a particular project, award, or activity. A indirect cost is incurred for common or shared objectives and cannot be readily assigned to a single award without effort disproportionate to the result. The federal rules at 2 CFR 200.413 and 200.414 govern this split (as of 2026 — verify).
| Typically direct | Typically indirect (overhead) |
|---|---|
| Program staff salaries & fringe for time on the grant | Executive director / finance staff time on general operations |
| Materials and supplies for the funded activity | Rent, utilities, and facilities not tied to one program |
| Travel for the project | Audit, bookkeeping, and general accounting |
| Subawards and contracts for the project | General liability insurance, IT, HR |
| Participant support costs | Board governance and general administration |
The consistency rule
The single most important principle: a given type of cost must be treated consistently as either direct or indirect across your whole organization. If you treat your bookkeeper as an indirect cost on one grant, you cannot also bill that same bookkeeping time as a direct cost on another. Double-charging or inconsistent charging is the fastest way to a disallowed cost (2 CFR 200.403, 200.405 — verify).
Why does this matter so much? Because the indirect rate (whether 15% de minimis or a negotiated NICRA) is applied only to your direct cost base. The cleaner and larger your defensible direct-cost base, the more overhead you legitimately recover. For the foundations of cost classification, see our functional expense allocation guide and the nonprofit chart of accounts.
The 15% de minimis rate
For small and mid-sized nonprofits, the de minimis rate is the single most useful provision in the Uniform Guidance. Under 2 CFR 200.414(f), any recipient or subrecipient that has never held a federally negotiated indirect cost rate may elect to charge a de minimis rate of up to 15% of Modified Total Direct Costs (as of 2026 — verify). This rate rose from 10% to 15% in the 2024 revisions to the Uniform Guidance, effective for awards issued on or after October 1, 2024 (verify against current eCFR).
Why the de minimis rate is a gift
- No negotiation. You do not contact a cognizant agency or submit a rate proposal.
- No documentation to justify the rate itself. You simply elect it (you still keep ordinary records of your costs).
- Usable indefinitely until you choose to pursue a negotiated rate.
- You may elect any rate up to 15% — including a lower one — and you determine the appropriate amount within that cap.
A few conditions apply. Once you elect the de minimis rate, you must use it consistently across all your federal awards until you opt to obtain a negotiated rate. Costs must be charged consistently as direct or indirect — no double-charging. And a federal agency or pass-through entity generally cannot force you below 15% unless a specific statute or regulation caps it; the de minimis rate is your right, not a number a funder negotiates down. Confirm specific program terms, because some federal programs have statutory administrative-cost caps that override this (as of 2026 — verify).
Note on terminology: many private foundations do not follow the federal Uniform Guidance at all and set their own overhead policies — some cap indirect at 10%, 15%, or 20%, others fund full costs. The 15% de minimis rate is a federal award concept. Always read each funder's guidelines. Our grant budget guide covers how to present overhead to different funder types.
What is MTDC (and what's excluded)
The 15% is not applied to your total budget. It is applied to Modified Total Direct Costs (MTDC), a specific base defined at 2 CFR 200.1. Misunderstanding MTDC is the most common error in de minimis calculations — applying 15% to the full budget overstates your recovery and can trigger a finding.
Per the definition (as of 2026 — verify), MTDC includes: all direct salaries and wages, applicable fringe benefits, materials and supplies, services, travel, and up to the first $50,000 of each subaward or subcontract (regardless of the subaward's period of performance).
MTDC excludes:
- Equipment and capital expenditures
- Charges for patient care
- Rental costs (in this base)
- Tuition remission
- Scholarships and fellowships
- Participant support costs
- The portion of each subaward in excess of $50,000
What changed in 2024
The subaward exclusion threshold rose from $25,000 to $50,000 per subaward in the 2024 Uniform Guidance revisions (as of 2026 — verify). In plain terms, you now earn indirect recovery on a larger slice of each subaward before the exclusion kicks in. The equipment and supplies capitalization thresholds also rose (commonly to $10,000), which can shift items between the direct base and the equipment exclusion. Always check your own capitalization policy and the current eCFR.
The practical takeaway: a budget heavy in equipment, large subawards, or participant support will have an MTDC base much smaller than its total — so 15% of MTDC recovers less than 15% of the budget. A budget that is mostly salaries, supplies, and travel will have an MTDC base close to the total.
Worked example: a $200k budget
Suppose a community nonprofit is building a $200,000 federal grant budget and intends to elect the 15% de minimis rate. Here is how to compute the MTDC base and the recoverable indirect costs (illustrative figures — your numbers and the current rules govern).
| Budget line | Amount | In MTDC base? |
|---|---|---|
| Program staff salaries | $80,000 | Yes — $80,000 |
| Fringe benefits (25%) | $20,000 | Yes — $20,000 |
| Materials & supplies | $12,000 | Yes — $12,000 |
| Travel | $8,000 | Yes — $8,000 |
| Subaward to a partner org | $70,000 | First $50,000 only |
| Equipment (one server, >$10k) | $15,000 | No — excluded |
| Participant support (stipends) | $10,000 | No — excluded |
| Direct cost subtotal | $215,000 | — |
Now compute the MTDC base by summing only the included amounts:
- Salaries $80,000 + fringe $20,000 + supplies $12,000 + travel $8,000 = $120,000
- Plus the first $50,000 of the $70,000 subaward = $50,000
- Excluded: $20,000 subaward overage + $15,000 equipment + $10,000 participant support = $45,000 (not in base)
- MTDC base = $120,000 + $50,000 = $170,000
Indirect recovery at the de minimis rate:
- $170,000 MTDC × 15% = $25,500 in recoverable indirect costs
Read the result correctly
- $25,500 is about 15% of MTDC, but only ~12.75% of the $200,000 total — because equipment, participant support, and the subaward overage were excluded.
- If you had wrongly applied 15% to the whole $200,000, you would have claimed $30,000 — overstating recovery by $4,500 and risking a disallowance.
- The total project budget becomes direct costs + indirect: $215,000 direct − wait, recheck your direct total against your award ceiling; here the funder's ceiling and your direct/indirect split must reconcile before submission.
For help assembling the full budget and tying indirect to direct lines, see the grant budget guide and nonprofit budgeting basics.
When to negotiate a NICRA
A Negotiated Indirect Cost Rate Agreement (NICRA) is a formal agreement between your organization and your federal cognizant agency for indirect costs — generally the federal agency that provides the largest share of your direct funding, or the agency assigned to you. In it, you propose an indirect rate based on your actual audited or documented overhead, the agency reviews your cost allocation methodology, and you both sign off on a rate (or rates) for a defined period.
You would pursue a NICRA when your true indirect cost rate genuinely exceeds 15% and the dollar value of your federal awards is large enough that the extra recovery justifies the substantial effort. Negotiating a NICRA typically requires an indirect cost rate proposal, a cost allocation plan, audited financials, and back-and-forth with a federal cost negotiator — a multi-month process.
Rough decision math
If your real overhead is, say, 22% of MTDC and you run $1,000,000 in federal MTDC annually, moving from 15% to 22% recovers an extra ~$70,000 per year — easily worth the proposal cost. If your overhead is 16% on $150,000 of MTDC, the extra ~$1,500 a year almost certainly is not worth a NICRA. Run your own numbers (as of 2026 — verify program rules).
Once you hold any federally negotiated rate, you generally lose eligibility for the de minimis rate — the de minimis is reserved for organizations that have never had a negotiated rate. So treat the move to a NICRA as a one-way door and confirm the math first. Pass-through entities (states, larger nonprofits passing federal funds to you) must accept your federally negotiated rate if you have one, or your elected de minimis rate if you do not. For broader indirect-cost strategy, the federal grants guide and grant management and reporting page are good next reads.
De minimis vs. negotiated: choosing
For most pre-launch and early-stage nonprofits, the de minimis rate is the right call. Here is the comparison at a glance (as of 2026 — verify current rules and your program terms).
| Factor | 15% de minimis | Negotiated NICRA |
|---|---|---|
| Eligibility | Never had a negotiated rate | Any organization willing to propose |
| Effort to obtain | None — you simply elect it | High — proposal, cost allocation plan, negotiation |
| Documentation of rate | Not required for the rate itself | Audited financials + methodology required |
| Rate ceiling | Up to 15% of MTDC | Your actual rate (can exceed 15%) |
| Best when | Overhead ≤ ~15%; smaller awards | Overhead clearly > 15%; large award volume |
| Reversibility | Can later pursue a NICRA | Generally lose de minimis eligibility |
A practical sequence for new nonprofits
- Start with the 15% de minimis rate on federal awards — it is free, fast, and defensible.
- Track your true overhead as a percentage of MTDC in your accounting system as you grow.
- Reassess when real overhead clearly exceeds 15% and federal MTDC volume is large.
- Engage a grants accountant before submitting a rate proposal — the methodology must be airtight.
Whichever path you choose, build the discipline of clean cost classification now. Strong financial management basics and a sound chart of accounts make either rate easy to defend in an audit.
Common pitfalls & checklist
Most indirect-cost findings in single audits trace back to a small set of avoidable errors. Watch for these.
- Applying 15% to the whole budget. It is 15% of MTDC, not total cost. Exclude equipment, participant support, and the subaward overage first.
- Forgetting the $50,000 subaward cap. Only the first $50,000 of each subaward is in the base (as of 2026 — verify).
- Double-charging. A cost treated as indirect in your rate cannot also appear as a direct line on the same or another award.
- Inconsistent classification. Treating the same cost type as direct on one grant and indirect on another.
- Assuming foundations follow the rule. Private funders set their own overhead policies; the 15% de minimis is a federal concept.
- Mistaking 10% for the current rate. The rate is 15% for awards on or after Oct 1, 2024 — confirm the award date.
Pre-submission indirect-cost checklist
- Confirmed eligibility for the de minimis rate (never held a negotiated rate).
- Built the MTDC base by excluding equipment, capital, participant support, rental, and each subaward portion over $50,000.
- Verified the current de minimis rate (15%) and the award's start date against the eCFR.
- Checked the funder's own overhead cap and any statutory administrative-cost limit on the program.
- Confirmed no cost is charged both directly and indirectly.
- Reconciled direct + indirect against the award ceiling.
When in doubt, a grants accountant pays for themselves on the first large award. For ongoing compliance, pair this with our audit preparation and grant readiness guides.
Recurring, unrestricted revenue that actually covers indirect costs
Grant overhead caps rarely cover your true costs. Good Circles gives your nonprofit recurring, unrestricted funding to fill the gap: supporters pick your cause once, then a share of their everyday local spending funds you automatically — about $72 per active supporter per year, roughly $36,000 a year from 500 supporters. It is free to join and the funds are unrestricted, so they can cover the overhead grants won't. This is an estimate, not a guarantee.
Claim a Founding Nonprofit spot →Sources & tools
Free first
- eCFR — 2 CFR 200.414 (Indirect costs) — The primary regulation establishing the de minimis rate and indirect-cost rules. Always the authoritative source for the current rate.
- eCFR — 2 CFR 200.1 (Definitions, incl. MTDC) — The official definition of Modified Total Direct Costs and its inclusions and exclusions, including the $50,000 subaward threshold.
- Grants.gov — Learn Grants — Plain-language federal grants education covering eligibility, the lifecycle, and budgeting fundamentals for new applicants.
- National Council of Nonprofits — Indirect Costs — Nonprofit-focused explainer on indirect cost rates, the de minimis option, and advocacy on full-cost funding.
Paid — optional labor-savers
- A grants accountant / nonprofit CPA — A professional who can build your cost allocation plan, set up direct/indirect rates, and prepare an indirect cost rate proposal. Worth it when Worth it when you are negotiating a NICRA, your overhead clearly exceeds 15%, or you manage large or multiple federal awards and need audit-ready cost rates.
Last verified 2026-06-16. Figures and rules change — verify at the source before you act.
FAQ
Is the de minimis indirect rate 10% or 15%?
As of 2026, the de minimis rate is up to 15% of Modified Total Direct Costs (MTDC) under 2 CFR 200.414(f). It rose from the previous 10% in the 2024 Uniform Guidance revisions, effective for federal awards issued on or after October 1, 2024. Older awards may still reference 10%, so confirm the award date and verify against the current eCFR text.
What does the 15% rate get applied to?
It is applied to Modified Total Direct Costs (MTDC), not your total budget. MTDC includes salaries, fringe, supplies, services, travel, and up to the first $50,000 of each subaward. It excludes equipment, capital expenditures, participant support costs, rental costs, tuition, scholarships, and the portion of each subaward over $50,000 (as of 2026 — verify).
Do I need a NICRA to recover indirect costs?
No. If your organization has never held a federally negotiated indirect cost rate, you can elect the 15% de minimis rate with no negotiation and no documentation of the rate itself, and use it indefinitely. A NICRA only makes sense once your true overhead clearly exceeds 15% and your federal award volume is large enough to justify the multi-month proposal process.
Can a funder force my indirect rate below 15%?
Generally no — the de minimis rate is your right, and federal agencies and pass-through entities cannot require you to use a rate below 15% unless a specific statute or program regulation caps administrative costs. Private foundations, however, are not bound by the Uniform Guidance and set their own overhead policies, so always read each funder's guidelines (as of 2026 — verify).