De Minimis Indirect Cost Rate: MTDC Base, Election, and Subrecipients

If your organization receives federal grant funding but does not have a federally negotiated indirect cost rate, you can elect the de minimis indirect cost rate and charge up to 15 percent of your modified total direct costs (MTDC) as overhead. No rate proposal, no negotiation with a federal agency, no documentation justifying the percentage. The ceiling rose from 10 percent to 15 percent under the 2024 revisions to the Uniform Guidance and applies to awards with project periods beginning on or after October 1, 2024.¹

Who Can Elect the Rate

Eligibility is broad. Any recipient or subrecipient that does not currently hold a federally negotiated indirect cost rate — including a provisional rate — can elect the de minimis option.² The regulation places no limits based on entity type. Nonprofits, local governments, tribal organizations, universities, and any other non-federal entity receiving federal funds qualify, provided no current negotiated rate is on file.

Before the 2024 revisions, organizations that had once held a negotiated rate and let it lapse faced barriers to returning to the de minimis rate. Those barriers are gone. Any entity without a current negotiated agreement now qualifies regardless of its history.¹

One constraint matters. Once you elect the de minimis rate, you must apply it consistently across all your federal awards. The election stays in place until you pursue a formal negotiated rate with your cognizant federal agency.² Using the de minimis rate on one grant and skipping it on another is not permitted.

How the 15 Percent Ceiling Works

The regulation authorizes a rate of “up to 15 percent” of modified total direct costs.² You are not locked into 15. Any rate up to that ceiling is your call. An organization with lower actual overhead might elect 12 percent; one with heavier overhead usually takes the full 15.

The cap sat at 10 percent for years. OMB raised it in the April 2024 revision after concluding the old rate left many organizations undercompensated for their real overhead. The Federal Register preamble described the change as providing “a more reasonable and realistic recovery of indirect costs, particularly for new or inexperienced organizations that may not have the capacity to undergo a formal rate negotiation.”¹

The 15 percent rate applies to awards with project periods beginning on or after October 1, 2024. If you elected the former 10 percent rate on an existing award, you can submit a budget modification to capture the higher rate, but only for activities starting after that date.³ Federal agencies also have discretion to allow the higher rate on existing awards where funds are available.

Agencies Cannot Force a Lower Rate

Federal agencies and pass-through entities cannot require a de minimis rate lower than what you elect, unless a specific federal statute or regulation caps indirect costs for that particular program.² If a program officer tells you the maximum is 8 percent and cannot point to a statutory or regulatory basis, the regulation is on your side. Organizations regularly leave money behind by accepting informal caps that have no legal foundation.

Some programs do impose real ceilings below 15 percent. Grants under the Rehabilitation National Activities Program, for instance, cap indirect cost reimbursement at 10 percent of total direct costs or the organization’s actual negotiated rate, whichever is less.⁴ Certain Department of Education training grants carry similar restrictions. Read the Notice of Funding Opportunity before you apply; any program-specific ceiling will be disclosed there.

What the Rate Applies To: The MTDC Base

The percentage applies to a defined subset of your direct costs called the Modified Total Direct Cost base, not to your total grant budget. Miscalculating the base is one of the fastest ways to draw an audit finding.

What Goes Into the Base

The MTDC base includes these categories of direct costs:⁵

Salaries and wages for staff working directly on the project.
Fringe benefits tied to those salaries, including health insurance, retirement contributions, and payroll taxes.
Materials and supplies consumed in the project.
Services purchased or contracted in support of the project.
Project-related travel.
The first $50,000 of each subaward, regardless of the subaward’s performance period.

The $50,000 subaward threshold is itself a 2024 change, up from $25,000 previously.

What Comes Out Before You Apply the Percentage

Several categories must be excluded from the base:⁵

Equipment and capital expenditures (items with a useful life beyond one year).
Patient care charges.
Rental costs for off-site facilities.
Tuition remission, scholarships, and fellowships.
Participant support costs: stipends, travel, and subsistence paid to participants in conferences, workshops, or training.
Any portion of a subaward exceeding the first $50,000.

The regulation also allows excluding other items when necessary to avoid a serious inequity in the distribution of indirect costs, but only with cognizant agency approval.⁵ For most de minimis users, this rarely comes into play.

A Worked Example

Say your grant budget has $120,000 in salaries, $30,000 in fringe benefits, $10,000 in supplies, $5,000 in travel, and one $75,000 subaward. Only the first $50,000 of the subaward enters the base. Your MTDC base is $215,000. At the full 15 percent, indirect cost recovery comes to $32,250. If you misclassified a $15,000 equipment purchase as supplies, you would overstate the base and overcharge indirect costs. Auditors look for exactly that.

How to Elect the Rate

The regulation is explicit on this point: “The de minimis rate does not require documentation to justify its use and may be used indefinitely.”² No cost allocation plan, no rate proposal, no showing that your actual overhead is 15 percent. That is the point of the de minimis option.

What you do is reflect the rate in your grant budget. On the SF-424 budget forms, enter your chosen rate and the resulting dollar amount on the indirect cost line. Your budget narrative should show the arithmetic: the MTDC base, the percentage elected, and the indirect cost figure that results. This is ordinary budgeting, not a special de minimis showing.

The election is formalized through the Notice of Award. Once the awarding agency issues that document reflecting the de minimis rate, the rate governs for the life of the award. Before applying, confirm your organization has no current negotiated rate on file. Even a provisional rate disqualifies you. Check past award documents and contact your cognizant federal agency if you are unsure.

If You Are a Pass-Through Entity or Subrecipient

When a subrecipient lacks a federally negotiated rate, the pass-through entity must work with the subrecipient to determine the appropriate rate. The options are a rate negotiated between the two parties or the de minimis rate.⁶

Two rules trip up pass-through entities. You cannot force a subrecipient to use the de minimis rate if the subrecipient already has a federally negotiated rate; the negotiated rate takes precedence. And you must include the applicable indirect cost rate in the subaward documentation.⁶ Missing that documentation is a common and entirely preventable audit finding.

When Negotiating a Higher Rate Makes Sense

Fifteen percent is a convenient floor, not a description of your actual overhead. Organizations with expensive facilities, significant IT infrastructure, or large administrative operations often have true indirect cost rates well above 15 percent. Universities negotiate rates in the 50 to 60 percent range. Smaller nonprofits often find their real overhead runs 25 to 35 percent of direct costs.

Once your federal award portfolio grows, the gap between 15 percent and your real cost adds up. On a $500,000 grant, a 15 percent de minimis rate produces $75,000 in recovery; a negotiated 30 percent rate would produce $150,000. The $75,000 difference is overhead your organization absorbs from other revenue.

You can initiate the negotiation process with your cognizant federal agency at any time, and the de minimis rate remains available until a negotiated rate is finalized. The negotiation requires preparing an indirect cost rate proposal documenting your actual costs, which the cognizant agency reviews. It calls for more accounting infrastructure than the de minimis election, but for organizations with substantial federal funding, the additional recovery usually justifies it. Your cognizant agency is generally the federal agency that provides the most direct funding to your organization.

Records and Audit Exposure

The de minimis rate itself needs no justification, but the direct costs feeding your MTDC base do. Retain timesheets, invoices, travel receipts, and subaward agreements for three years from the end of the fiscal year covered by the expenditure. Because the de minimis rate does not involve a formal proposal submitted to the federal government, the retention clock runs from the end of the relevant fiscal year rather than from the submission of a final report.⁷

Organizations that spend $1,000,000 or more in federal awards during a fiscal year must undergo a Single Audit, a threshold raised from $750,000 in the 2024 revisions.⁸ For organizations above that line, auditors examine whether the MTDC base was calculated correctly: whether excluded items like equipment and participant support costs were properly stripped out, and whether the percentage charged matches what the Notice of Award authorized. Consistent, clean cost classification across awards is the best defense you have.

1
Federal Register. Guidance for Federal Financial Assistance
2
eCFR. 2 CFR 200.414 – Indirect Costs
3
U.S. Department of Education. Frequently Asked Questions 2 CFR Part 200
4
eCFR. 34 CFR 373.22 – What Are the Limitations on Indirect Costs
5
eCFR. 2 CFR 200.1 – Definitions
6
eCFR. 2 CFR 200.332 – Requirements for Pass-Through Entities
7
eCFR. 2 CFR 200.334 – Record Retention Requirements
8
eCFR. 2 CFR 200.501 – Audit Requirements