What is Modified Total Direct Cost (MTDC)?

If you manage federal grants, you've encountered MTDC—Modified Total Direct Cost. It's the most common base for calculating indirect costs, and getting it wrong can mean leaving money on the table or facing audit findings.

This guide explains exactly what MTDC is and how to calculate it correctly.

MTDC in Plain English

Modified Total Direct Cost (MTDC) is your total direct costs, minus certain exclusions. It's used as the base for applying your indirect cost rate.

Think of it this way:

• Total Direct Costs (TDC) = Everything you charge directly to the grant
• MTDC = TDC minus specific exclusions
• Indirect Costs = MTDC × Your indirect cost rate

Why "Modified"?

The "modified" part refers to exclusions. Certain costs are removed from the base because:

1. They would distort the relationship between direct and indirect costs
2. They already carry their own indirect costs (like subawards)
3. Federal policy excludes them

What's Excluded from MTDC

Per 2 CFR 200 (Uniform Guidance), these are excluded:

1. Equipment ($5,000+ per unit)

Capital equipment costing $5,000 or more per unit is excluded. This threshold may be lower if your organization's policy sets a lower capitalization limit.

2. Capital Expenditures

Building renovations, land, infrastructure improvements.

3. Patient Care Costs

Costs of medical treatment (mainly for research institutions).

4. Rental/Lease of Real Property

Rent for buildings and land (but equipment rental IS included).

5. Tuition Remission

Graduate student tuition waivers.

6. Scholarships and Fellowships

Student financial aid.

7. Participant Support Costs

Stipends, travel, and subsistence for participants (not staff).

8. Subawards Over $25,000

Only the first $25,000 of each subaward is included in MTDC. Amounts above $25,000 are excluded.

The $25,000 Subaward Rule

This trips up many organizations. Here's how it works:

Scenario: You have a $100,000 subaward to a partner organization.

Component	Amount	In MTDC?
First $50,000	$25,000	Yes
Remaining $75,000	$75,000	No

Only $25,000 of this subaward counts toward your MTDC base.

Why? The subrecipient is charging their own indirect costs. If you charged indirect on the full amount, you'd be double-dipping.

Multiple Subawards: The $50K threshold applies per subaward, per budget period.

MTDC Calculation Example

Let's calculate MTDC for a grant with these direct costs:

Cost Category	Amount
Personnel	$150,000
Fringe Benefits	$45,000
Travel	$10,000
Supplies	$15,000
Equipment (one item, $8,000)	$8,000
Subaward to Partner A	$60,000
Subaward to Partner B	$20,000
Participant Stipends	$5,000
Total Direct Costs	$313,000

Now calculate MTDC:

Item	Calculation	Adjustment
Equipment over $5K	$8,000	-$8,000
Subaward A over $50K	$60,000 - $25,000	-$35,000
Subaward B	$20,000 (under $25K)	$0
Participant Stipends	$5,000	-$5,000
Total Exclusions		-$48,000

MTDC = $313,000 - $48,000 = $265,000

If your indirect rate is 15%: Indirect Costs = $265,000 × 15% = $39,750

MTDC vs. Other Bases

Federal grants may use different indirect cost bases:

Base	What's Included	When Used
MTDC	TDC minus exclusions	Most common
TDC	All direct costs	Some grants
Direct Salaries & Wages	Personnel costs only	Research institutions
Direct Salaries, Wages & Fringe	Personnel + benefits	Some organizations

Your negotiated rate agreement specifies which base to use.

Getting Your MTDC Right

Step 1: Know Your Exclusions

Review 2 CFR 200.68 for the complete list. Your organization may have additional exclusions per your negotiated agreement.

Step 2: Track Subawards Carefully

Maintain clear records of:

• Each subaward total
• Which budget period
• First $25K vs. excess

Step 3: Classify Equipment Properly

Track individual equipment purchases, not just total spending. A $10,000 equipment purchase is excluded; ten $1,000 purchases are not.

Step 4: Separate Participant Costs

If you have participant support, track it separately from staff costs.

Step 5: Document Everything

Auditors will test your MTDC calculation. Keep supporting documentation for all exclusions.

Common MTDC Mistakes

Mistake 1: Excluding All Equipment

Only equipment $5,000+ per unit is excluded. Smaller items stay in MTDC.

Mistake 2: Forgetting the $25K Subaward Inclusion

People remember to exclude amounts over $50K but forget to INCLUDE the first $50K.

Mistake 3: Excluding Equipment Rental

Real property rental is excluded. Equipment rental is NOT excluded.

Mistake 4: Not Tracking by Budget Period

The $25K subaward threshold resets each budget period. A multi-year subaward gets $25K included each year.

Mistake 5: Using Wrong Base

If your rate agreement says "MTDC" but you use TDC, you'll over-claim and face audit findings.

MTDC and Grant Budgeting

When building a grant budget:

1. Calculate direct costs by category
2. Identify exclusions and sum them
3. Calculate MTDC = TDC - Exclusions
4. Apply indirect rate to MTDC
5. Total budget = TDC + Indirect

Budget template structure:

Personnel:           $150,000
Fringe:              $45,000
Travel:              $10,000
Supplies:            $15,000
Equipment:           $8,000   [Excluded from MTDC]
Subaward A:          $60,000  [$35K excluded from MTDC]
Subaward B:          $20,000
Participant Support: $5,000   [Excluded from MTDC]
-----------------------------
Total Direct:        $313,000
MTDC Base:           $265,000
Indirect (15%):      $39,750
-----------------------------
Total Budget:        $352,750

De Minimis Rate Option

Don't have a negotiated rate? You may use the 15% de minimis rate per 2 CFR 200.414(f):

• Applied to MTDC
• Available if you've never had a negotiated rate
• No negotiation or documentation required
• May be lower than a negotiated rate would be

Tools for MTDC Tracking

Managing MTDC manually is error-prone. Consider:

• Grant management software that tracks exclusions automatically
• Spreadsheet templates with built-in exclusion logic
• Accounting system configuration that flags excluded costs

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GrantLink automatically calculates MTDC and tracks subaward thresholds, so your indirect cost calculations are always accurate. See how it works.