Nonprofit Indirect Cost Rates: De Minimis 15% vs a Negotiated Rate (NICRA)

The short version

• A nonprofit indirect cost rate is the percentage applied to a direct cost base to recover shared costs, such as executive, accounting, and facility costs, on federal awards.
• Under 2 CFR 200.414(f), an organization without a current federal negotiated rate may elect a de minimis rate of up to 15 percent of modified total direct costs (MTDC). The 15 percent rate, which replaced 10 percent, came with the 2024 Uniform Guidance revisions, effective for awards issued on or after October 1, 2024.
• The alternative is a negotiated indirect cost rate agreement (NICRA), set by the cognizant agency for indirect costs and accepted by all federal agencies, with limited exceptions.
• Pass-through entities must accept a subrecipient's federally negotiated rate (2 CFR 200.414(d) and 200.332(b)(4)).
• Either path depends on consistent cost classification and payroll records that meet 2 CFR 200.430(g).

Direct costs vs indirect costs

Direct costs can be identified specifically with a particular final cost objective, such as a federal award, or assigned to it relatively easily with a high degree of accuracy (2 CFR 200.413(a)). Indirect costs are incurred for a common or joint purpose benefiting more than one cost objective and are not readily assignable without effort disproportionate to the results (2 CFR 200.1).

Three rules matter most:

• There is no universal list. Each cost incurred for the same purpose in like circumstances must be treated consistently as direct or indirect, to avoid double charging (2 CFR 200.412).
• For nonprofits, typical indirect costs may include depreciation, facility operation and maintenance, and general administration such as executive salaries, personnel administration, and accounting (2 CFR 200.414(b)).
• Administrative and clerical salaries should normally be indirect. They may be charged directly only if the services are integral to the award, the individuals are specifically identified with it, and the costs are not also recovered as indirect costs (2 CFR 200.413(c)).

Unallowable activities that include salaries, occupy space, and benefit from indirect costs are still treated as direct costs when a rate is computed, so they carry their share of overhead (2 CFR 200.413(e)). Leaving them out of the base inflates the rate.

Modified total direct costs (MTDC)

MTDC is the base the de minimis rate is applied to. Under 2 CFR 200.1 it includes:

• Direct salaries and wages and applicable fringe benefits
• Materials and supplies, services, and travel
• Up to the first $50,000 of each subaward, regardless of the subaward's period of performance

MTDC excludes:

• Equipment and capital expenditures
• Charges for patient care
• Rental costs
• Tuition remission, scholarships, and fellowships
• Participant support costs
• The portion of each subaward over $50,000

Other exclusions require a serious inequity and the cognizant agency's approval. Equipment means tangible personal property with a useful life of more than one year and a per-unit cost at or above the lesser of the organization's capitalization level or $10,000 (2 CFR 200.1).

How a nonprofit indirect cost rate is calculated: a worked example

The numbers below are hypothetical. Assume a nonprofit with no negotiated rate elects the full 15 percent de minimis rate, and one federal award budget shows these direct costs:

Indirect costs allowed: 15% x $325,000 = $48,750. Applying 15 percent to total direct costs instead would claim $73,350, an overstatement of $24,600 that would not survive review.

A negotiated rate uses the base in the agreement. Under the simplified allocation method in Appendix IV to Part 200, the rate is allowable indirect costs divided by an equitable base, such as total direct costs (excluding capital expenditures and other distorting items) or direct salaries and wages, and the base must exclude participant support costs. A hypothetical pool of $66,000 over a base of $300,000 gives 22 percent.

The 15% de minimis rate: what 2 CFR 200.414(f) says

The rules are short:

• Available to recipients and subrecipients without a current federal negotiated rate (including a provisional rate).
• "Up to" 15 percent of MTDC. The organization chooses the rate up to that limit.
• Federal agencies and pass-through entities may not require a lower rate than the one elected unless a federal statute or regulation requires it.
• It may not be applied to cost reimbursement contracts issued directly by the federal government under the FAR.
• No documentation is required to justify its use, and it may be used indefinitely.
• Once elected, it must be used for all federal awards until the organization chooses to receive a negotiated rate.
• Costs must be charged consistently as direct or indirect, never both.

The 2024 revisions were published on April 22, 2024, effective October 1, 2024. Agencies could apply them to earlier awards, but not before June 21, 2024. Check the terms of any older award.

Negotiated indirect cost rate agreements (NICRA)

A negotiated rate starts with an indirect cost rate proposal. Appendix IV to Part 200 sets the rules for nonprofits:

• Timing: a first proposal is due no later than three months after the effective date of the federal award, then within six months after each fiscal year end unless an extension is approved.
• Certification: a Certificate of Indirect (F&A) Costs signed by an official no lower than vice president or chief financial officer.
• Methods: simplified allocation, multiple allocation base (when functions benefit in varying degrees), or direct allocation (only general administration stays indirect).
• Rate types: predetermined, fixed with carry-forward, provisional (billing), and final.

Organizations receiving more than $10 million in direct federal funding are "major nonprofit organizations" and must classify indirect costs into Facilities and Administration (2 CFR 200.414(a)).

Federal agencies must accept negotiated rates unless a statute or regulation requires otherwise or the awarding agency approves a deviation under published policies stated in the notice of funding opportunity (2 CFR 200.414(c)). An organization with a current rate may apply once for an extension of up to four years (2 CFR 200.414(g)); the Interior Business Center says only final and predetermined rates may qualify. Existing rates stay in place until they expire (2 CFR 200.110(b)). The Economic Development Administration says negotiation can take about four to six months, one agency's estimate.

The cognizant agency for indirect costs

The cognizant agency for indirect costs reviews, negotiates, and approves rates on behalf of all federal agencies, and is not necessarily the same as the cognizant agency for audit (2 CFR 200.1). For a nonprofit it is generally the federal agency with the largest dollar value of awards directly funded to the organization. The assignment does not change unless the dollar volume shifts for at least three years (Appendix IV, C.2.a).

Two offices handle much of this work:

• HHS Cost Allocation Services (CAS) negotiates indirect, fringe benefit, and special rates, formalized in a Rate Agreement. Proposals go through its ICAS portal.
• DOI Interior Business Center, Indirect Cost Services, negotiates for nonprofits funded mostly by Interior and, under interagency agreements, for many other agencies, including EPA, NSF, NEA, NEH, and the Department of State. It publishes nonprofit templates.

If a nonprofit has no direct federal funding at all, the pass-through entity is responsible for negotiating its rate (Appendix IV, C.2.a).

What pass-through entities must honor

Many nonprofits receive federal money as subrecipients. Under 2 CFR 200.332(b)(4), every subaward must state the indirect cost rate:

• If the subrecipient has a federally negotiated rate, the pass-through entity must use it and must not require the de minimis rate.
• If not, the pass-through entity determines the rate with the subrecipient: either a rate negotiated between them, which may rest on a rate already negotiated with a different pass-through entity, or the de minimis rate.
• Subrecipients may instead use the cost allocation method under 2 CFR 200.405(d).

2 CFR 200.414(d) adds that pass-through entities must accept all federally negotiated rates for subrecipients. In our reading, a pass-through cap below a subrecipient's NICRA, with no statute or regulation behind it, is worth questioning.

Cost allocation plans and written policies

In 2 CFR 200.1, a "cost allocation plan" means a central service or public assistance plan, a government tool. Nonprofits document the same logic in their allocation method and a written cost policy statement, which the Interior Business Center's sample proposal includes. Under 2 CFR 200.405(d), a cost benefiting two or more projects in determinable proportions must be allocated by proportional benefit. EDA says it will not accept a cost allocation plan in place of an indirect cost rate.

Documentation and time and effort support

Payroll records are where charges hold up or fail. Under 2 CFR 200.430(g)(1), records must:

• Be supported by internal controls that give reasonable assurance charges are accurate, allowable, and properly allocated
• Be part of the official records and reasonably reflect total compensated activity, not exceeding 100 percent
• Support the split of salary when an employee works on more than one award, or on direct and indirect activities

Budget estimates alone do not qualify as support. They may be used for interim accounting only with periodic after-the-fact reviews and adjustments. Nonexempt employees also need records of total hours worked each day.

Why this is a natural advisory service for finance firms

This is our interpretation. Indirect cost work uses skills outsourced CFO, controller, and grants compliance firms already have: chart of accounts design, functional expense and payroll allocation, and audit preparation. Typical engagements:

• A written direct versus indirect policy, applied consistently.
• Modeling 15 percent of MTDC against a supportable negotiated rate.
• Preparing the proposal: pool, base, reconciliation to audited statements, and certificate.
• Checking that subawards state the right rate and base.
• Time and effort systems that meet 2 CFR 200.430(g).

Nonprofits with rising federal funding or a first direct award are the likeliest to need this. That is an inference to test, not a fact about any one organization.

How AwardNote uses this

Sources

All retrieved October 29, 2026.

• 2 CFR 200.414, Indirect costs (eCFR): ecfr.gov
• 2 CFR 200.1, Definitions (eCFR): ecfr.gov
• 2 CFR 200.412, Classification of costs (eCFR): ecfr.gov
• 2 CFR 200.413, Direct costs (eCFR): ecfr.gov
• 2 CFR 200.332, Requirements for pass-through entities (eCFR): ecfr.gov
• 2 CFR 200.405, Allocable costs (eCFR): ecfr.gov
• 2 CFR 200.430, Compensation, personal services (eCFR): ecfr.gov
• 2 CFR 200.110, Effective date (eCFR): ecfr.gov
• Appendix IV to Part 200, Indirect (F&A) Costs for Nonprofit Organizations (eCFR): ecfr.gov
• OMB, Guidance for Federal Financial Assistance, 89 FR 30046 (April 22, 2024): federalregister.gov
• HHS Program Support Center, Cost Allocation Services: hhs.gov
• DOI Interior Business Center, Nonprofit Organizations FAQs: ibc.doi.gov
• DOI Interior Business Center, Filing Instructions for Nonprofit Organizations: ibc.doi.gov
• U.S. Economic Development Administration, How to Get Your Indirect Cost Rate if EDA is Your Cognizant Agency: eda.gov

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