Setting Up Indirect Cost Rates

Indirect costs, also called overhead or facilities and administrative (F&A) costs, are costs that benefit more than one program and that you cannot easily assign to one program. The sections below explain the common types of indirect cost rates and where you enter a grant's rate in GrantLink.

Understanding indirect costs

What indirect costs are

Indirect costs benefit more than one cost objective, and you cannot assign them to one objective without effort that is out of proportion to the benefit. Depending on your organization's policy, which you must apply consistently, examples can include:

• Rent and utilities
• Administrative salaries
• Accounting and human resources
• Insurance
• General supplies

Indirect cost rates

An indirect cost rate states indirect costs as a percentage of a cost base.

Rate = (indirect costs / direct cost base) x 100

The formula is only an illustration. Use the cost pool and base defined in your negotiated rate agreement, the de minimis rule, the award, or the funder's policy. No single range of rates is correct for every organization.

Types of indirect cost rates

De minimis rate

Under 2 CFR 200.414(f), a recipient or subrecipient that does not have a current federally negotiated indirect cost rate may elect a rate of up to 15% of Modified Total Direct Costs (MTDC). You do not need to negotiate a rate or document your actual indirect costs to justify it. You still need records that support the MTDC base and the costs you charge, and you must charge each type of cost consistently as either direct or indirect. Once you elect the rate, you must use it for all federal awards until you choose to negotiate a rate.

Negotiated rate

You negotiate a rate with your cognizant agency for indirect costs. A negotiated rate has these features:

• It is based on your actual indirect costs.
• You must document and defend it.
• It is often higher than the de minimis rate, but not always.

Funder caps

Some funders limit indirect cost recovery. For example, a funder may allow no more than 15% indirect costs, allow no indirect costs, or allow your negotiated rate up to 20%.

MTDC exclusions

Under 2 CFR 200.1, MTDC excludes the following costs:

• Equipment, which currently means items with a per-unit cost at or above the lesser of your capitalization level or $10,000 and a useful life of more than one year
• Capital expenditures
• Charges for patient care
• Rental costs
• Tuition remission, scholarships, and fellowships
• Participant support costs
• The portion of each subaward over $50,000

For more detail, see What is Modified Total Direct Cost (MTDC)?.

Federal rules for using a rate

For federal awards, use the rate and base that the award and 2 CFR 200.414 authorize. Federal agencies must accept a negotiated rate unless a federal statute or regulation requires a different rate or the agency approves a deviation under the rule. A pass-through entity must accept a subrecipient's federally negotiated rate. If the subrecipient has no negotiated rate, the pass-through entity must either agree on a rate with the subrecipient or let it use the de minimis rate. Existing negotiated rates stay in place until they expire, so do not assume the 2024 revisions changed the rate on an older award.

Internal practices

1. Establish or document your indirect cost rate.
2. Check the rate each grant allows.
3. Track indirect cost recovery carefully, because it affects cash flow.
4. Review your rate on the schedule set by your rate agreement, your awards, and your close calendar. The de minimis rate is an election, so you do not recalculate it each year from actual costs.
5. Consider negotiating a rate if the 15% de minimis rate does not cover your indirect costs.

How GrantLink supports this today

Open the grant and go to Budget > Indirect costs. Enter the Indirect Cost Rate (%) and, if the funder sets a limit, the Indirect Cost Cap. Then use Calculate New Period to calculate indirect costs for a period from the grant's expense allocations. For the full steps, see Running Indirect Cost Calculations.

QuickBooks Online stays your accounting record, and GrantLink does not currently post indirect cost journal entries to QuickBooks Online. Record any required entry in QuickBooks Online through your normal accounting process. To create a report, open Chats > New chat. Reports for a grant are listed on the grant's Reporting > Reports page.

Sources

• 2 CFR 200.1 has the current definitions of equipment and MTDC, including the $10,000 equipment threshold and the first $50,000 of each subaward.
• 2 CFR 200.414 covers negotiated rates, pass-through entity duties, and the 15% de minimis rate.