Leaving Money on the Table or Claiming More Than You Can Defend

HiQuity Solutions
May 5
6 min read

Updated: 5 days ago

POST 6 of 10

Series - Grant Ready: A Compliance Readiness Framework for Federal Award Recipients

Introduction

Every organization that receives a federal grant incurs indirect costs: the administrative, operational, and overhead expenses that support the work without being directly tied to a single program activity, spanning accounting staff time, office space, IT infrastructure, and organizational leadership. These costs are real and legitimate, and federal awards are designed to reimburse them.

Most small and mid-sized nonprofits leave a significant portion of those costs on the table, however, and some claim more than they can defend. Both outcomes create problems (one financial, one regulatory) with both stemming from the same source: a misunderstanding of how indirect cost recovery actually works under the Uniform Guidance.

If your organization is writing federal proposals this spring, this is the right moment to get it right. Indirect costs have to be built into the approved budget before the award arrives, and they cannot be added after the fact.

HHS Grantee Note: The regulatory citations throughout this series reflect 2 CFR Part 200, which fully replaced 45 CFR Part 75 as the governing framework for HHS awards effective October 1, 2025. If your organization's compliance policies still reference Part 75, see early posts in this series for what changed and what your organization needs to do.

What Indirect Costs Are and Why They Matter

Direct costs are straightforward: the salaries, supplies, and contracted services that can be tied specifically to the grant-funded program. Indirect costs are everything else that makes the program possible but cannot be attributed to a single award without approximation: organizational management, financial administration, human resources, facilities, and similar shared operational functions.

Federal awards are designed to cover both. An organization that charges only direct costs to its federal grants is effectively subsidizing the federal program with its own unrestricted funds and absorbing real organizational costs that the award is permitted to reimburse. For many nonprofits, that gap is a meaningful one. Indirect cost recovery is not a budget padding strategy; charging nothing at all is a grantee actual error.

The De Minimis Rate: What Changed in 2024 and What It Means for Your Budget

Organizations that do not have a current Federally Negotiated Indirect Cost Rate Agreement (NICRA) have two options: negotiate a rate with their cognizant federal agency, or elect the de minimis rate under 2 CFR § 200.414(f).

The 2024 revisions to the Uniform Guidance, effective for new federal awards issued on or after October 1, 2024, raised the de minimis rate from 10% to up to 15% of Modified Total Direct Costs (MTDC). For organizations managing awards under the 2024 revisions, this is a meaningful increase in what can be recovered without any negotiation, documentation, or agency approval. The de minimis rate can be used indefinitely and requires no justification to elect.

Two things about this rate are frequently misunderstood.

It is not automatically 15%. The regulation says "up to 15 percent" — meaning the organization determines the appropriate rate within that ceiling. Organizations should have some basis for the rate they elect, particularly if it approaches the maximum, even though formal documentation is not required.
It applies to the award year. Whether the 2024 revision and its updated de minimis ceiling apply to a specific award depends on when that award was issued. New direct federal awards issued on or after October 1, 2024, are presumed to apply the 2024 revisions. Awards issued before that date are governed by prior guidance unless the agency has explicitly amended the award terms.

Organizations managing awards from multiple years may be operating under different applicable rates simultaneously.

For HHS grantees specifically: HHS adopted the updated 15% de minimis ceiling effective October 1, 2024, with one important exception: training grants and foreign awards retain the HHS-specific 8% de minimis cap. Review the specific terms of each HHS award to confirm which rate applies.

The MTDC Base: Where the Math Goes Wrong

The de minimis rate is applied not to total direct costs but to Modified Total Direct Costs, a defined subset that excludes specific cost categories. This distinction is where calculation errors most commonly occur, and where indirect cost over recovery becomes an audit finding.

Under 2 CFR § 200.1, MTDC includes all direct salaries and wages, applicable fringe benefits, materials and supplies, services, and travel, plus up to the first $50,000 of each subaward, regardless of the subaward's period of performance.

MTDC specifically excludes the following:

Equipment and capital expenditures
The portion of each subaward in excess of $50,000
Rental costs for space
Tuition remission
Scholarships and fellowships
Participant support costs
Charges for patient care

Organizations that apply the de minimis rate to their total direct cost budget without first removing these excluded items are overclaiming indirect costs. That overclaim is subject to disallowance and repayment, including interest, if identified in an audit.

The calculation matters as much as the rate; an organization that correctly elects 15% but applies it to the wrong base may recover less than it is owed or more than it is permitted.

The NICRA Alternative: When It Makes Sense to Negotiate

The de minimis rate is a floor, not a ceiling on what is equitable. Organizations whose actual indirect cost burden exceeds 15% of MTDC, common for organizations with significant administrative infrastructure, shared facilities, or substantial operational overhead, may be leaving considerable recovery on the table by defaulting to the de minimis rate.

A Negotiated Indirect Cost Rate Agreement, developed with the cognizant federal agency, establishes a rate based on the organization's actual indirect cost structure. For organizations with a track record of federal awards and documented overhead costs, a negotiated rate often results in higher indirect cost recovery than the de minimis rate provides.

The tradeoff becomes administrative burden. Negotiating a NICRA requires a formal indirect cost proposal, ongoing documentation, and periodic renegotiation. Organizations which are new to federal awards or those with straightforward cost structures may find the de minimis rate entirely sufficient. In any case, the decision deserves analysis.

One important restriction applies to both approaches: once an organization elects the de minimis rate, it must use that rate consistently across all federal awards until it chooses to negotiate a rate. It cannot apply the de minimis rate to some awards and a different approach to others.

What This Means During Proposal Development

Indirect costs must be included in the proposed budget and approved as part of the award. An organization that omits indirect costs from its proposal cannot add them post-award without a budget modification, and federal agencies are not obligated to approve modifications that add cost categories absent from the original approved budget.

The questions to answer before submitting a federal proposal this spring are straightforward:

Does your organization have a current NICRA, and if so, what rate does it establish?
If not, are you eligible to elect the de minimis rate under the 2024 revisions for this award
What is your MTDC base after removing excluded cost categories?
Is the rate you are building into this budget the rate you can consistently apply, document, and defend across all of your current federal awards?

Getting indirect costs wrong in a budget is one of the most correctable mistakes in federal grant management, but only if it is caught before the award is made.

Unsure whether your current indirect cost approach is leaving money unclaimed or creating audit exposure? HiQuity Solutions works with organizations during proposal development to build indirect cost structures that are accurate, defensible, and fully compliant with the 2024 Uniform Guidance revisions.

Schedule a No-Cost Consultation

References

[1] 2 C.F.R. § 200.414. Indirect Costs. OMB Uniform Guidance, as revised October 1, 2024. https://www.ecfr.gov/current/title-2/part-200/subpart-E

[2] 2 C.F.R. § 200.414(f). De Minimis Rate. OMB Uniform Guidance, as revised October 1, 2024. https://www.ecfr.gov/current/title-2/part-200/subpart-E/subject-group-ECFRd93f2a98b1f6455/section-200.414

[3] Redstone GCI. "What is the De Minimis Rate and Who Can Elect to Use It?" (July 2025). https://info.redstonegci.com/blog/what-is-the-de-minimis-rate-and-who-can-elect-to-use-it

[4] Clark Nuber PS. "Uniform Guidance: The De Minimis Indirect Cost Rate — Updated" (April 2025). https://clarknuber.com/articles/uniform-guidance-the-de-minimis-indirect-cost-rate-updated/

[5] Jones & Roth CPAs. "Uniform Guidance: De Minimis Indirect Cost Rate" (February 2026). https://www.jrcpa.com/uniform-guidance-de-minimis-indirect-cost-rate/

[6] 2 C.F.R. § 200.1. Definition of Modified Total Direct Costs (MTDC). OMB Uniform Guidance, as revised October 1, 2024. https://www.ecfr.gov/current/title-2/part-200/200

[7] U.S. Department of Labor. A Guide for Indirect Cost Rate Determination, 2 CFR Part 200 Subpart E & Appendix IV. https://www.dol.gov/sites/dolgov/files/OASAM/legacy/files/DCD-2-CFR-Guide-vvh-508.pdf