If your organization does not have a federally negotiated indirect cost rate, the 2024 revisions to the Uniform Guidance raised what you can charge from 10 percent to up to 15 percent. That sounds like a 50 percent increase in your overhead recovery.

That is roughly right about the rate and wrong about almost everything else. This post works a realistic budget all the way through so you can see where the money actually lands.

Three changes, not one

The headline is the rate. Two other changes in the same 2024 revision move real money, and they get almost no attention.

  • The de minimis rate went from 10 percent to up to 15 percent of modified total direct costs, at 2 CFR 200.414(f). It is available to any recipient or subrecipient without a current federally negotiated rate.

  • The subaward amount included in the base went from the first $25,000 of each subaward to the first $50,000, defined at 2 CFR 200.1. That doubling matters to anyone who subawards, and it applies regardless of the period of performance of the subaward.

  • The equipment capitalization benchmark went from $5,000 to $10,000, also at 2 CFR 200.1. Equipment is excluded from the base, so a higher benchmark means fewer purchases get pulled out of it.

That third one has a catch worth stating now. The benchmark is $10,000 or a lower capitalization level if your own financial statement policy sets one. If your capitalization policy still says $5,000, that is the number that governs you. Raising it is a real accounting policy decision with consequences beyond indirect recovery, so it is a conversation with your auditor, not a quick edit to a procedure manual.

The number most people compute

You have a $600,000 program budget. The rate is 15 percent. So the indirect recovery is $90,000.

That is the calculation almost everyone does, and it produces the wrong answer. The rate applies to modified total direct costs, which is a smaller number than your budget, sometimes much smaller.

The gap between those two figures is the entire reason this post exists. An organization that budgets off $90,000 and bills off the correct figure has a hole in its program budget. The hole does not announce itself at proposal time. It shows up eight months in, when somebody runs the numbers and finds that overhead is coming in short and the difference is being covered by unrestricted funds that were committed to something else.

So the question worth answering is what your modified total direct cost base actually contains.

Building the base, line by line

Here is a realistic $600,000 program for a small Western North Carolina nonprofit. The figures are invented, but the shape is ordinary: a staffed direct service program with participant stipends, a vehicle, leased space, and two partner organizations receiving subawards.

2 CFR 200.1 defines the base as direct salaries and wages, applicable fringe benefits, materials and supplies, services, travel, and up to the first $50,000 of each subaward. It excludes equipment, capital expenditures, charges for patient care, rental costs, tuition remission, scholarships and fellowships, participant support costs, and the portion of each subaward above $50,000.

Seven lines of that budget sit inside the base, and they total $480,000:

  • Salaries and wages, $272,000

  • Fringe benefits, $68,000

  • Materials and supplies, $18,000

  • Contracted services, $22,000

  • Travel, $10,000

  • Subaward A to a partner nonprofit, $40,000, included in full because it is under $50,000

  • Subaward B to a regional partner, the first $50,000 of a $60,000 subaward

Four lines sit outside it, and they total $120,000:

  • Participant stipends, $45,000, excluded as participant support costs

  • Program vehicle, $35,000, excluded as equipment

  • Program space lease, $30,000, excluded as rental costs

  • The $10,000 of Subaward B above the $50,000 line

The base comes to $480,000 against a $600,000 budget.

Fifteen percent of $480,000 is $72,000.

The naive calculation said $90,000. The correct one says $72,000. That is an $18,000 difference on a single program, and it is 20 percent of what the organization thought it was recovering.

Three exclusions did most of the damage, and they are the three that show up most often in real nonprofit budgets: participant support costs, rent, and equipment. A program that pays stipends and leases space can easily find a quarter of its budget sitting outside the base.

The subaward rule is the one people get wrong

Look again at the two subawards in that budget.

Subaward A is $40,000, and all $40,000 is in the base. Subaward B is $60,000, and only $50,000 is in the base. The $10,000 above the line comes out.

Three things about that rule trip people up.

It applies to each subaward separately. Two $40,000 subawards put $80,000 in the base. One $80,000 subaward puts $50,000 in. Same money out the door, different recovery, purely because of how the partnerships were papered.

It is regardless of the period of performance. A $60,000 subaward spread across three years does not get $50,000 counted each year. The definition is explicit on this point. The first $50,000 of that subaward is in the base, full stop.

It changed in 2024, and old templates still say $25,000. This is the figure most likely to be stale in a budget template, a cost policy, or a spreadsheet somebody built in 2023 and nobody has touched since. If your proposal template still excludes everything above $25,000 per subaward, you are quietly under-recovering on every proposal you submit.

In the example above, that one stale number is worth real money. Under the $25,000 rule, Subaward A would contribute $25,000 instead of $40,000, and Subaward B would contribute $25,000 instead of $50,000. The base drops by $40,000 before anything else is considered.

What the change is actually worth

Now run the same budget under the old rules and the new ones.

Under the old rules, the base excluded everything above $25,000 per subaward. Subaward A contributed $25,000, Subaward B contributed $25,000, and the other exclusions were unchanged. The base was $440,000. At 10 percent, the recovery was $44,000.

Under the current rules, the base is $480,000 and the rate is up to 15 percent. The recovery is $72,000.

That is $28,000 more on one $600,000 program, a 64 percent increase rather than the 50 percent the headline suggests, because the rate and the subaward figure moved together.

It is also worth seeing what each change contributed on its own:

  • Rate alone, 10 to 15 percent on the old $440,000 base: $44,000 to $66,000.

  • Subaward figure alone, at the old 10 percent rate: $44,000 to $48,000.

  • Both together: $72,000.

For an organization running three or four federal programs, this is the difference between an executive director's salary being partly unfunded and being funded. Indirect recovery is how the finance function, the audit, the insurance, and the person who answers the phone get paid. Treating it as a technicality is how organizations end up underwriting federal programs out of their own reserves.

Whether you can use the rate at all

The eligibility test is short. You may elect the de minimis rate if you do not have a current federally negotiated indirect cost rate, including a provisional rate. That covers most small and mid-sized nonprofits, because negotiating a rate is a real project and most organizations never undertake it.

A few features of the rule are easy to miss.

It is up to 15 percent, and you set the number. The regulation authorizes the recipient to determine the appropriate rate up to that limit. Twelve percent is allowed. So is eight. Fifteen is a ceiling.

You are not required to use it at all. The rule says so explicitly.

Once you elect it, you use it consistently. The regulation requires that a recipient or subrecipient electing the de minimis rate use it for all federal awards until it chooses to pursue a negotiated rate. You do not get to charge 15 percent to the generous funder and 8 percent to the stingy one because it suits the budget.

No documentation is required to justify it, and it may be used indefinitely. There is no cost allocation plan to submit, no approval to obtain, and no expiry. This is the genuine advantage of the de minimis rate over a negotiated one.

It does not apply to FAR cost reimbursement contracts issued directly by the federal government. Those are procurement contracts and they run under a different set of rules.

One more that causes audit findings: costs must be treated consistently as either direct or indirect, and the same cost cannot be charged both ways. If your bookkeeper charges the accounting software subscription directly to a grant and that cost is also sitting in the indirect pool, that is a double charge, and it is the kind of thing a Single Audit is built to find.

What a funder can and cannot do about it

This is where a lot of subrecipients get pushed around, so it is worth being precise about what the regulation says.

2 CFR 200.414(f) states that federal agencies and pass-through entities may not require recipients and subrecipients to use a de minimis rate lower than the negotiated rate or the rate elected, unless required by federal statute or regulation.

Read that carefully, because it is slightly narrower than the version that gets repeated in trainings. The protection is real, and it means a state agency or a larger nonprofit passing federal money to you generally cannot tell you that their policy is 10 percent and that is that. But the carve-out for statute and regulation is genuine. Some federal programs have statutory administrative cost caps, and where one applies, it applies.

So when a pass-through entity tells you your indirect is capped below your elected rate, the question to ask is which statute or regulation imposes the cap. If they can name one, that is the answer. If the cap is their own policy, the regulation is on your side and it is worth a polite conversation citing the paragraph.

Two related points:

  • Separately, 2 CFR 200.414(d) requires pass-through entities to accept a subrecipient's federally negotiated rate where one exists. If you have negotiated a rate, that is the provision to cite rather than the de minimis one.

  • Private funders are not covered by any of this. A private foundation that caps overhead at 10 percent is entitled to do so. The Uniform Guidance governs federal awards and federal money passed And if the money is State-funded rather than federal

    Everything above concerns federal awards and federal money passed through. A grant paid from a North Carolina State appropriation is not a federal award, so 2 CFR 200.414 does not reach it of its own force. What governs is the administering agency's rules, and in North Carolina those diverge enough that the answer has to be looked up agency by agency.

    Two real examples, at opposite ends:

    NC DHHS applies the federal cost principles to State-funded grants to nonprofits through the NC Administrative Code. Its grant contracts manual budgets the 15 percent de minimis rate for organizations without a federally approved rate.OSBM directed grants run the other way. OSBM's grants FAQ states that directed grant funds generally may not be used for indirect costs, and directs grantees to raise specific costs with their assigned grant administrator.

    So "can we charge 15 percent" has no single answer for State money in North Carolina. Ask the administering agency in writing before you build the budget, and keep the answer with the award file.

    One trap worth flagging: some State agency pages still publish the retired 10 percent figure. The NC Department of Administration's FVPSA indirect cost page is one, and FVPSA is federal money passed through a State agency, so 15 percent under 2 CFR 200.414(f) is the current figure and the page is simply out of date. Where a page and the regulation disagree on a federal award, the regulation governs. Where the award is State-funded, the award terms do.

    One provision that runs in your favor: under 09 NCAC 03M .0205, the cost of a required audit can be charged to the State grant.through. It has nothing to say about a family foundation's grant agreement.

And if the money is State-funded rather than federal

Everything above concerns federal awards and federal money passed through. A grant paid from a North Carolina State appropriation is not a federal award, so 2 CFR 200.414 does not reach it of its own force. What governs is the administering agency's rules, and in North Carolina those diverge enough that the answer has to be looked up agency by agency.

Two real examples, at opposite ends:

  • NC DHHS applies the federal cost principles to State-funded grants to nonprofits through the NC Administrative Code. Its grant contracts manual budgets the 15 percent de minimis rate for organizations without a federally approved rate.

  • OSBM directed grants run the other way. OSBM's grants FAQ states that directed grant funds generally may not be used for indirect costs, and directs grantees to raise specific costs with their assigned grant administrator.

So "can we charge 15 percent" has no single answer for State money in North Carolina. Ask the administering agency in writing before you build the budget, and keep the answer with the award file.

One trap worth flagging: some State agency pages still publish the retired 10 percent figure. The NC Department of Administration's FVPSA indirect cost page is one, and FVPSA is federal money passed through a State agency, so 15 percent under 2 CFR 200.414(f) is the current figure and the page is simply out of date. Where a page and the regulation disagree on a federal award, the regulation governs. Where the award is State-funded, the award terms do.

One provision that runs in your favor: under 09 NCAC 03M .0205, the cost of a required audit can be charged to the State grant.

If the award ceiling includes indirect, the math runs backwards

The example above treats $600,000 as direct costs, with indirect recovery on top. Total award: $672,000.

Plenty of funding opportunities do not work that way. The notice names a ceiling, say $600,000, and that ceiling covers everything. Direct and indirect together.

You cannot just take 15 percent of $600,000 and subtract it. The rate applies to the modified base, and the base is a function of your direct costs, which is what you are solving for. Budget it the other way and your direct costs plus your indirect will exceed the ceiling, which means the proposal gets kicked back or, worse, gets funded and then runs short.

The workable approach is to build the direct budget first, compute the base and the indirect from it, add them, and then scale the direct side down until the total lands under the ceiling. It takes two or three passes in a spreadsheet. There is no shortcut formula, which is exactly why people skip the step.

Read the funding notice for which structure applies before you build anything. The phrase to look for is whether the ceiling is inclusive of indirect costs. If the notice is ambiguous, ask the program officer in writing and keep the answer.

If you have been budgeting 10 percent

Five things to do, in order.

  1. Fix the templates. Every proposal budget template, every internal cost policy document, and every spreadsheet that computes indirect. Look specifically for a hardcoded 10 percent and for a $25,000 subaward cap. Both are now wrong, and both will keep producing understated budgets until somebody changes them.

  2. Decide your rate and write it down. Fifteen percent, or less if you have a reason. Put the decision somewhere a successor can find it, because the consistency requirement means this is an organizational policy and not a per-proposal choice.

  3. Check the exclusions against your actual cost structure. If you pay participant stipends, lease space, or buy equipment, your base is meaningfully smaller than your budget. Work out roughly how much smaller once, and stop being surprised by it.

  4. Look at awards currently in hand. Some may be amendable. See the next section, because the answer there is less clean than anyone would like.

  5. Disclose the election in the notes to your SEFA if you have a Single Audit. 2 CFR 200.510(b)(6) requires the notes to state whether you elected the de minimis rate of up to 15 percent. That is the whole election mechanism. There is no form, no filing, and no registration anywhere.

On that last point, be skeptical of any source telling you to file an indirect cost rate election. For the de minimis rate there is nothing to file. Charging the rate and disclosing it is the election.

Does this apply to awards you already hold?

The honest answer is that it depends on the agency, and you have to ask.

The 2024 revisions took effect on 1 October 2024. They were not made retroactive. For awards issued before that date, federal agencies had the option, but not the obligation, to apply the revised guidance, and where an agency elected to do so the effective date could not precede 21 June 2024, when the final rule published.

Agencies have handled this differently, and at least one major one does not frame it by award date at all. The Department of Justice's Office of Justice Programs has told recipients that the revisions apply to award actions taken on or after 1 October 2024, and that the date of the action under the award, not the date of the award, is what determines which version governs. In the same guidance it notes that agencies may allow a recipient to apply the 15 percent de minimis rate to an existing award, and that prior approval or a grant award modification is often required to do it.

So there is no single rule to state here, and any blog post that gives you one is overstating what the guidance supports. What there is instead is a question to ask, in writing, of each awarding agency or pass-through entity holding an award you signed before October 2024:

Does the 2024 Uniform Guidance apply to this award, and may we apply the 15 percent de minimis indirect cost rate to the remaining period of performance? If so, what modification do you need from us?

Keep the answer with the award file. If the answer is yes and a modification is required, the modification is usually a short administrative request, and on a multi-year award the money at stake can be substantial.

For awards issued on or after 1 October 2024, none of this uncertainty applies. The current rules govern.

One more thing worth saying plainly

Under-recovered indirect costs do not disappear. They get funded out of unrestricted revenue, which is the hardest money a nonprofit raises and the money that would otherwise go to the mission.

If you are charging 10 percent because that is what the template said, the fix costs an afternoon and is worth five figures a year on a modest federal portfolio.

If you want someone to check the work, that is part of what the Grant Readiness Review covers. It is a fixed-fee, two-week assessment starting at $1,500 that tells you what an auditor or a funder would find in your books, including whether your indirect cost treatment holds up. More on how we handle grant tracking and restricted funds is on the grant compliance page.

Sources

All figures in the worked example are invented for illustration. They are not drawn from any client's budget.