Indirect costs: NICRA, the 15% de minimis rate, and overhead

No program runs without someone paying the rent, running payroll, closing the books, keeping the computers working, and leading the organization. Those costs are real, and they are part of what it costs to deliver every program you run. Yet for decades nonprofits have been pressured to pretend otherwise, asking for less overhead than they actually spend because they believe funders want to see a low number.

This guide explains what indirect costs are, how federal rules treat them, how foundation policies differ, what changed (and what did not) in the 2025–2026 policy fights, and how to calculate and ask for your real rate. To run the numbers for your own organization, use our indirect cost calculator.

What indirect costs are

Every cost your organization incurs is either direct or indirect for a given grant.

• Direct costs can be specifically identified with a particular project: the tutor's wages, the curriculum, the evaluator's contract.
• Indirect costs are incurred for shared purposes that benefit several programs and cannot be easily assigned to just one: the executive director's time, the finance office, HR, general liability insurance, the main office lease, audit fees, IT systems.

The federal Uniform Guidance gives typical examples for nonprofits in 2 CFR 200.414(b): depreciation on buildings and equipment, the costs of operating and maintaining facilities, and general administration and general expenses, such as the salaries and expenses of executive officers, personnel administration, and accounting.

You will hear indirect costs called many things: overhead, administrative costs, facilities and administrative (F&A) costs, organizational support, or core costs. Funders sometimes define these terms differently, so read each funder's definition before you fill in their budget form.

Why indirect costs matter

When funders refuse to pay a fair share of shared costs, the shortfall does not disappear. It is covered by unrestricted funds, deferred maintenance, underpaid staff, outdated systems, or thin reserves. A 2009 Stanford Social Innovation Review article by Ann Goggins Gregory and Don Howard of the Bridgespan Group named this pattern the "nonprofit starvation cycle": funders hold unrealistic expectations about overhead, nonprofits feel pressure to conform, they underreport and underinvest in infrastructure, and the unrealistic expectations are reinforced.

The practical takeaway: an organization that lowballs its indirect costs on every grant is quietly subsidizing its funders. Grant writers can help break that cycle by calculating the real number and asking for it.

Federal indirect costs: the rules

For federal awards and most federal pass-through funding, indirect costs are governed by 2 CFR 200.414 and the definitions in 2 CFR 200.1. You can recover indirect costs in one of two main ways.

Option 1: A negotiated indirect cost rate agreement (NICRA)

A NICRA is a formal rate agreement negotiated with your cognizant agency for indirect costs, the federal agency responsible for negotiating and approving rates on behalf of all federal agencies. For nonprofits, Appendix IV to Part 200 provides that, unless agencies agree otherwise, the cognizant agency is the federal agency with the largest dollar value of federal awards directly funded to the organization. If a nonprofit receives no direct federal funding, only funds passed through a state or other entity, the pass-through entity is responsible for negotiating the rate.

Key rules from 200.414:

• Federal agencies must accept negotiated rates. An agency may use a different rate only when required by federal statute or regulation, or when it approves a deviation under its own published policies. Agencies must notify OMB of approved deviations, and recipients may notify OMB of disputes.
• Pass-through entities must accept federally negotiated rates for subrecipients.
• NOFOs must state the policies on indirect cost reimbursement that apply.
• One-time extension. A recipient with a current negotiated rate may apply for a one-time extension of up to four years, subject to the cognizant agency's approval.

Negotiating a rate requires submitting an indirect cost proposal based on your audited financial statements, with your costs separated into direct and indirect and an allocation base. It takes work, and usually an accountant familiar with federal cost principles, but it can produce a rate well above the de minimis if your real costs justify it.

Option 2: The de minimis rate

If you do not have a current federally negotiated rate (including a provisional rate), you may elect to charge a de minimis rate of up to 15 percent of modified total direct costs (MTDC) under 2 CFR 200.414(f).

The 2024 revisions to the Uniform Guidance, published April 22, 2024, raised the de minimis rate from 10 percent to 15 percent, effective October 1, 2024. Awards made under the earlier rules may still reflect the 10 percent rate, so check your award terms.

What the rule says about the de minimis rate:

• You determine the rate, up to 15 percent.
• Federal agencies and pass-through entities may not require you to use a lower rate than the one you elect, unless a federal statute or regulation requires it.
• It requires no documentation to justify its use and may be used indefinitely.
• Once elected, you must use it for all federal awards until you choose to negotiate a rate.
• Costs must be charged consistently as direct or indirect, never both.
• You are not required to use it. If your real rate is higher, you can negotiate.

Modified total direct costs (MTDC)

The de minimis rate, and many negotiated rates, apply to MTDC, not total direct costs. Under 2 CFR 200.1, MTDC:

Includes all direct salaries and wages, applicable fringe benefits, materials and supplies, services, travel, and up to the first $50,000 of each subaward (regardless of the period of performance of the subawards under the award).

Excludes equipment, capital expenditures, charges for patient care, rental costs, tuition remission, scholarships and fellowships, participant support costs, and the portion of each subaward in excess of $50,000.

The 2024 revisions raised the subaward inclusion from $25,000 to $50,000. Other items may be excluded only when needed to avoid a serious inequity and with the cognizant agency's approval.

Applying 15 percent to total direct costs instead of MTDC would have produced $33,000, which is $6,000 more than the rule allows. This is one of the most common federal budget errors.

The NIH exception, as of October 2026

Not every federal agency applies the 2024 thresholds. The appropriations law that funds NIH has, since fiscal year 2018, required NIH to keep applying the indirect cost provisions of the old HHS rule at 45 CFR Part 75 in the same manner as in fiscal year 2017. The fiscal year 2026 appropriations act (P.L. 119-75) continued that requirement.

On April 20, 2026, NIH issued NOT-OD-26-072, rescinding two flexibilities it had adopted in January 2025: the updated MTDC definition and the 15 percent de minimis rate. NIH said it "will not apply updated thresholds outlined within 2 CFR Part 200, at this time." According to COGR's analysis of the notice, that means a return to the prior framework for NIH awards: MTDC including up to the first $25,000 of each subaward, and a 10 percent de minimis rate. NIH continues to recognize the higher $10,000 equipment threshold.

If you apply to NIH, read the current NIH Grants Policy Statement and the specific NOFO, and confirm the rate with your sponsored programs or finance office.

What happened in 2025–2026

The federal government's approach to indirect costs was the subject of major litigation in 2025 and early 2026. Here is the record as of October 2026.

The 15 percent caps and the court outcome

• NIH. On February 7, 2025, NIH issued NOT-OD-25-068, imposing a 15 percent indirect cost rate on all new grants and, retroactively, on existing grants to institutions of higher education. States, universities, and higher education associations sued in federal court in Massachusetts. The district court blocked the policy and permanently vacated it in spring 2025. In early January 2026, the U.S. Court of Appeals for the First Circuit unanimously affirmed, finding the policy violated both the appropriations rider and NIH's own regulations.
• NSF. On June 20, 2025, a federal district court in Massachusetts declared NSF's 15 percent indirect cost policy for higher education institutions invalid and vacated it.
• Department of Energy. A district court vacated DOE's 15 percent cap policy for universities in mid-2025.
• Department of Defense. A district court vacated DoD's 15 percent cap on October 10, 2025. The government appealed, then voluntarily dismissed the appeal in February 2026.

The deadline to seek Supreme Court review of the First Circuit's NIH decision passed in April 2026 without a petition. In April 2026, the American Council on Education reported that the litigation had concluded with the plaintiffs winning all four cases.

These caps were aimed largely at research universities. For community nonprofits, the more important outcome is the principle the courts upheld: agencies cannot simply discard negotiated rates outside the procedures the rules and Congress require.

Executive Order 14332 and the proposed Uniform Guidance rewrite

On August 7, 2025, the President signed Executive Order 14332, "Improving Oversight of Federal Grantmaking." Among other things, it states that, "All else being equal, preference for discretionary awards should be given to institutions with lower indirect cost rates."

On May 29, 2026, OMB published a proposed rule, "Regulation for Federal Financial Assistance" (91 FR 32198), a broad rewrite of the Uniform Guidance. It carries the same preference for applicants with lower indirect cost rates into proposed merit review language. However, OMB stated it "is not proposing updates to the indirect cost rate negotiation system through this document" and said it may issue a request for information on that topic in the future. Comments closed July 13, 2026.

As of October 2026, the proposal has not been finalized, so the current 2 CFR 200.414 rules, including the 15 percent de minimis rate, remain in effect for most federal agencies. NACUBO has also reported that the administration's FY2027 budget request again sought a 15 percent limit. Watch for final rules and appropriations language; see our federal funding landscape page for ongoing updates.

How foundations treat indirect costs

Private foundations are not bound by the Uniform Guidance. Each sets its own policy, and the range is wide: some pay nothing beyond direct costs, some cap overhead at 10 or 15 percent, some pay a set rate, some will pay your actual audited rate, and some prefer general operating support, which makes the question moot.

A few large foundations have published policies that are well above what many nonprofits ask for. These are examples, not recommendations, and policies change, so always read the current version.

What this tells you: some sophisticated funders have concluded that healthy nonprofits commonly need indirect rates in the 20s or higher. If a funder's policy allows your real rate, ask for it.

Reading foundation overhead policies

When you read a funder's guidelines, look for:

• The rate and the base. Is it a percentage of direct costs, of the total grant, or of "project costs" as they define them? A 15 percent rate on direct costs is not the same as 15 percent of the total.
• What counts as indirect. Some funders let you include a share of program supervision or facilities as direct project costs; others insist those are overhead.
• Whether they accept a NICRA. Some foundations accept your federal negotiated rate or audited rate.
• Whether general operating support is available. It is usually more valuable than any overhead percentage, because it is flexible.

The full-cost movement

Over the past decade, a growing set of funders, nonprofit associations, and consultants have pushed for "full-cost" or "real-cost" funding: grants that cover the full cost of delivering programs, including indirect costs and the cost of building reserves and capacity. The core ideas:

• Overhead percentage is a poor measure of effectiveness.
• Nonprofits should know and communicate their full costs.
• Funders should pay their fair share of those costs, or provide flexible general operating support.

For you as a grant writer, the full-cost approach means three practical things. First, calculate your real indirect rate and keep it current. Second, build project budgets that include every real direct cost, including supervision, evaluation, and data. Third, use the budget narrative to explain the full cost and what the organization is covering from other sources, as in the sample justification in our grant budget guide.

How to calculate your indirect cost rate

You can estimate a defensible rate from your audited financial statements or Form 990. This is the same logic as the federal simplified allocation method in Appendix IV, which applies when your major functions benefit from indirect costs to about the same degree: separate total costs into direct and indirect, then divide allowable indirect costs by an equitable distribution base.

Step by step

1. Start with total expenses for your most recent completed fiscal year, from your audited financial statements.
2. Identify indirect costs. Your statement of functional expenses (and Form 990 Part IX) splits expenses into program services, management and general, and fundraising. Management and general is your starting indirect pool. Add any shared facility, IT, or insurance costs not already allocated to programs.
3. Remove unallowable costs if you are calculating a rate for federal use: alcohol, entertainment, bad debt, lobbying, and similar items are unallowable under the cost principles. Fundraising costs are unallowable as federal charges; how they are handled in a federal rate proposal is technical, so get help from an accountant.
4. Identify the base. Usually total direct costs (program services, and often fundraising as a separate direct activity), minus any exclusions like equipment, pass-through grants, or participant support, so that the base mirrors how you will apply the rate.
5. Divide the indirect pool by the base. That is your rate.

Have your finance director or auditor review the calculation. For a federal negotiated rate, the proposal must follow the specific requirements in Appendix IV, and it is worth hiring an accountant with federal cost-allocation experience.

Which rate to use where

Common mistakes

• Applying the rate to the wrong base. Federal de minimis applies to MTDC, not total direct costs.
• Double charging. Charging rent or accounting directly when they are already in your indirect pool.
• Guessing the rate. Using 10 percent because it sounds safe, rather than calculating your real number.
• Leaving it out. Omitting indirect costs entirely on a foundation budget that would have allowed them.
• Missing agency exceptions. Using the 15 percent de minimis on an NIH application after April 2026, or ignoring a statutory cap stated in a NOFO.
• No written justification. Not explaining what the indirect costs support.

For the federal rules in context, see our Uniform Guidance overview, and for how indirect costs flow to partners, see subawards and pass-through funding. When you are ready to build the full budget, start with the budget builder.