Indirect costs are the overhead expenses you can’t tie to a single project — and the indirect cost rate is how you recover them in a federal budget. Used correctly, it can add thousands of dollars in legitimate funding to your award.
What is an indirect cost rate?
An indirect cost rate is the percentage you apply to your direct costs to recover overhead — administration, facilities, utilities and other shared expenses. Federal grants let you recover these costs (also called “F&A,” facilities and administrative costs) so the grant pays a fair share of running your organization.
Direct vs indirect costs
Direct costs can be traced to a specific project; indirect costs cannot. A project coordinator’s salary is direct; your bookkeeper, rent and IT systems that serve the whole organization are indirect. The indirect cost rate exists because you can’t reasonably itemize the second group per grant.
The 10% de minimis rate
Any organization without a negotiated rate may elect the 10% de minimis rate. Under the Uniform Guidance (2 CFR 200), you can charge 10% of your modified total direct costs as indirect — no negotiation or paperwork required. For small nonprofits, this is the simplest way to recover overhead.
The negotiated rate (NICRA)
A negotiated indirect cost rate agreement (NICRA) is a custom rate approved by your federal cognizant agency. Organizations with significant federal funding negotiate a NICRA — often well above 10% — based on their actual cost structure. Once approved, you use that rate across federal awards.
How to apply the rate to your budget
Apply your rate to your modified total direct costs, not to the entire budget. Certain items — equipment, the portion of subawards above $25,000, and pass-through funds — are excluded from the base. Show the calculation clearly in your budget justification so reviewers can verify it.
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Frequently asked questions
What is the 10% de minimis indirect cost rate?
It is a flat 10% of modified total direct costs that any organization without a negotiated rate may charge for overhead under 2 CFR 200 — no negotiation required.
Do I need a negotiated indirect cost rate?
Not necessarily. If you don’t have one, you can use the 10% de minimis rate. Organizations with large or ongoing federal funding often negotiate a NICRA for a higher, custom rate.
What costs are excluded from the indirect base?
Modified total direct costs exclude items like equipment, capital expenditures, and the portion of each subaward above $25,000, among others. Apply your rate only to the modified base.