Setting Up Indirect Cost Rates

Indirect costs (also called overhead or F&A costs) are expenses that benefit multiple programs but can't be directly assigned. This guide covers how to set them up in GrantLink.

Understanding Indirect Costs

What Are Indirect Costs?

Costs that benefit more than one cost objective and are not readily assignable without disproportionate effort. Depending on the organization's consistently applied policy and circumstances, examples may include:

• Rent and utilities
• Administrative salaries
• Accounting and HR
• Insurance
• General supplies

Indirect Cost Rates

An indirect cost rate expresses overhead as a percentage of a cost base:

Rate = (Indirect Costs ÷ Direct Cost Base) × 100

The formula is illustrative; use the pool and base defined by the negotiated agreement, de minimis rule, award, or funder policy. There is no universally appropriate rate range.

Types of Indirect Cost Rates

De Minimis Rate

• 15% of Modified Total Direct Costs (MTDC)
• Under the current 2 CFR 200.414(f), a recipient or subrecipient without a current negotiated indirect cost rate may elect up to 15% of MTDC. A government department or agency receiving more than $35 million in direct federal funding must submit an indirect-cost-rate proposal and may not elect this rate
• Does not require negotiating an indirect-cost proposal, but the election, MTDC base, direct costs, consistent application, and claimed amount still require support

Negotiated Rate

Established with the cognizant federal agency for indirect costs (or otherwise recognized under the applicable rules):

• Based on your actual indirect costs
• Must be documented and defended
• Typically higher than de minimis

Funder-Imposed Caps

Some funders limit indirect recovery:

• "No more than 15% indirect"
• "Indirect costs not allowed"
• "Use your negotiated rate up to 20%"

MTDC Exclusions

Modified Total Direct Costs typically exclude:

• Equipment as defined in 2 CFR 200.1 (currently the lesser of the recipient's capitalization level or $10,000 per unit, plus a useful life over one year)
• Capital expenditures
• Participant support costs
• The portion of each subaward exceeding $50,000
• Rental costs of real property
• Tuition remission

For federal awards, use the rate and distribution base authorized by the award and 2 CFR 200.414. A federal agency generally must accept a negotiated rate unless a statute or regulation requires otherwise or the agency documents and approves an exception under the rule. A pass-through entity must recognize an applicable federally negotiated rate; if none exists, it must determine a rate with the subrecipient or permit the de minimis rate. Confirm treatment on older awards rather than assuming the 2024 revisions amended them.

Internal operating practices

1. Know your rate - Establish or document your indirect rate
2. Understand funder limits - Check each grant's allowed rate
3. Track carefully - Indirect cost recovery affects cash flow
4. Review on the required cadence - Follow the negotiated-rate agreement, award, and internal close calendar; the de minimis rate is an election rather than an annual actual-cost rate
5. Consider negotiating - If the 15% de minimis election does not fit the organization's circumstances

How GrantLink supports this today

QuickBooks Online is the accounting source of truth. GrantLink reports begin in Chats > New Chat and then appear in the grant Reports tab. GrantLink allocations do not inherently rewrite QuickBooks Online; any write requires explicit permission and its applicable workflow. Settings > QuickBooks Mapping is for restriction-release account mappings, not broad grant matching.

Sources

• 2 CFR 200.1 — current definitions of equipment and MTDC, including the $10,000 equipment threshold and first $50,000 of each subaward
• 2 CFR 200.414 — negotiated rates, pass-through responsibilities, and the 15% de minimis election