Two rule changes worth real money
In 2024 OMB revised the Uniform Guidance — 2 CFR 200 — with effect for federal awards issued on or
after October 1, 2024. Two of the changes put money directly into applicants’ budgets, and a
great many organizations are still budgeting as though neither happened.
The de minimis indirect cost rate rose from 10% to 15%. If you have no current negotiated
indirect cost rate, you may charge up to 15% of modified total direct costs for overhead, without
justifying it and without negotiating anything. On a project with $300,000 of modified total direct
costs, that is fifteen thousand additional dollars of unrestricted-in-practice money, for changing
one number.
The MTDC subaward threshold rose from $25,000 to $50,000. You may now include the first $50,000
of each subaward in the base your indirect rate applies to. For organizations that work through
partners, this is a meaningful increase in recovery. One caveat: existing negotiated rates stay in
place until they expire, so an organization with a negotiated rate generally applies the increased
threshold only once it is reflected in its current rate agreement.
Two more changes matter for planning rather than revenue. The Single Audit threshold rose from
$750,000 to $1 million in federal funds expended in a fiscal year, for fiscal years starting on or
after October 1, 2024. And the equipment threshold rose from $5,000 to $10,000 per unit, which
moves more purchases into supplies — and so into the base your indirect rate applies to.
What the 2025 and 2026 changes did not touch
OMB published a proposed rewrite of the Uniform Guidance on May 29, 2026, to carry out Executive
Order 14332. Comments closed July 13, 2026, and no final rule had been published as of October 27,
2026. The proposal does not change the de minimis rate, the definition of MTDC, the equipment
threshold or the $1 million audit threshold, and OMB says outright that it is not proposing changes
to indirect cost rate negotiation. Its preamble notes that fiscal year 2026 appropriations told
specified agencies to keep applying negotiated rates the way they did in fiscal year 2024.
Everything on this page reflects the rules in force today. If OMB finalizes the rewrite, check the
final text before you build your next budget.
Indirect costs are not a dirty word
There is a persistent belief in the nonprofit sector that overhead is something to minimize and
apologize for. That belief is expensive, and it comes largely from private funders that cap or
refuse indirect recovery.
Federal awards do not work that way. Rent, accounting, HR, insurance and administration are real
costs of delivering a program, and the Uniform Guidance exists in part to let you recover them.
Every federal agency must accept a negotiated rate unless a statute or regulation requires
otherwise. An organization that consistently declines to claim indirect costs is not being
virtuous; it is funding the federal government’s programs out of its own reserves, and it will
eventually run out.
One caveat since August 2025: Executive Order 14332 tells agencies that, all else being equal,
discretionary awards should go to institutions with lower indirect cost rates. That is a tie-breaker
in selection, not a cap on what you may charge.
Claim the rate you are entitled to.
Getting MTDC right
The most common budget error is applying an indirect rate to the wrong base.
Your rate applies to modified total direct costs, which is total direct costs minus:
- equipment and 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.
So a project with a large equipment purchase, a big subaward or a lot of participant stipends has a
much smaller indirect base than its headline direct costs suggest. Applicants get this wrong in both
directions — overstating their budget by applying the rate to everything, or understating it by
excluding costs that should be in the base, such as items under the $10,000 equipment threshold.
Compute MTDC explicitly as its own line in your working spreadsheet. It makes the error visible.
Cost share, and when to volunteer it
Cost share is the share of project costs you carry rather than the federal award. The NOFO states
whether it is required, at what percentage, and whether in-kind contributions count.
The important asymmetry: where cost share is required, failing to document it is a compliance
failure that can invalidate an otherwise strong application. Where it is not required,
voluntary committed cost share generally cannot win you points — for research grants an agency may
not score it unless a statute or regulation allows it and the NOFO says so, and for other programs
agencies are discouraged from scoring it. Offering it buys you an obligation without buying an
advantage. Read the NOFO and do exactly what it asks.
Reviewers use the budget justification to test whether you actually understand your project. A
narrative that explains why 0.4 FTE of a data analyst is necessary, and how the figure was derived,
signals a team that has thought the work through. A budget of round numbers with no derivation
signals guesswork, regardless of how good the project narrative was.
Write it as a defence of each line: what the cost is, why the project requires it, and how you
arrived at the amount.
Who this guide is not for
Applicants to private foundations that cap overhead. Foundation rules are their own; the
Uniform Guidance governs federal awards. Foundation indirect-cost policies vary widely — some cap
overhead well below federal rates and some refuse it entirely — so read each funder’s own policy.
Anyone treating the budget as paperwork to finish last. The budget is where a plausible project
becomes an implementable one. Building it from the workplan, early, usually improves the workplan.
