Indirect Costs on Federal Grants: The 15% De Minimis Rate vs. a NICRA

What Is the 15% De Minimis Indirect Cost Rate?

If your organization has never had a negotiated indirect cost rate agreement (NICRA) with the federal government, you can charge a 15% de minimis indirect cost rate on your federal grants, applied to modified total direct costs (MTDC). This is the baseline answer to one of the most common questions small grantees ask: "how much overhead can I actually bill the government?" The rate comes from 2 CFR 200.414, the Uniform Guidance section governing indirect (facilities and administrative, or "F&A") costs, which was revised in 2024 to make the de minimis rate the default floor rather than a capped ceiling — a meaningful change for small businesses and nonprofits that had been shortchanging themselves for years.

Before that revision, agencies and pass-through entities sometimes treated 15% as a maximum they'd negotiate down. The updated guidance makes clear that any non-federal entity without a current negotiated rate is entitled to use 15% de minimis, no justification required, and pass-through entities (the states, universities, or prime grantees who award you a subaward) must honor it.

What Counts as "Modified Total Direct Costs" (MTDC)

The de minimis rate isn't applied to your whole grant budget — it's applied to MTDC, a specific, narrower base. Under 2 CFR 200.1, MTDC includes:

• Salaries and wages
• Fringe benefits
• Materials and supplies
• Services
• Travel
• The first $25,000 of each subaward (regardless of the subaward's period of performance)

MTDC excludes:

• Equipment (items over $5,000 and with a useful life beyond one year)
• Capital expenditures
• Rental costs for off-site facilities
• Scholarships and fellowships
• Participant support costs
• The portion of any subaward over $25,000
• Tuition remission

This distinction matters a lot in practice. If you have a $400,000 subcontract as part of your grant, you don't get to charge 15% indirect on the full amount — only on the first $25,000 of it. Budget preparers who miss this routinely overstate their indirect recovery and get flagged during award negotiation or, worse, during audit.

What the De Minimis Rate Is Supposed to Cover

The 15% de minimis rate is meant to approximate the F&A costs you can't easily trace to a single project: rent, utilities, general liability insurance, HR and accounting staff time, IT infrastructure, and depreciation on shared equipment. It's a flat substitute for doing a full cost allocation study. For a small business or small nonprofit running one or two federal awards, that simplicity is the entire point — you're trading some potential recovery for dramatically less paperwork.

Whether 15% is enough depends heavily on your actual cost structure. Firms with high facilities costs (labs, manufacturing space, specialized equipment) or large administrative overhead relative to direct labor frequently find their true indirect rate runs higher — sometimes 25-40% of MTDC, based on the range commonly reported in federal rate negotiation data and cost accounting literature for small R&D and professional services firms. If that's you, the de minimis rate is leaving real money on the table every year you use it.

When to Negotiate Your Own Rate (NICRA)

A Negotiated Indirect Cost Rate Agreement is a formal, audited rate — often provisional, final, or predetermined — that your cognizant federal agency approves after reviewing your actual cost pools and allocation methodology. It typically takes the place of the 15% default once established, and it's binding on all federal agencies and pass-through entities you work with, not just the one you negotiated it with.

Consider pursuing a NICRA when:

1. Your real indirect costs consistently exceed 15% of MTDC. Run the math on your last two fiscal years. If actual overhead allocation is landing at 20%+, a negotiated rate likely recovers more money per award, not less.
2. You're scaling federal revenue. A company doing $150k in federal grants a year may not justify the administrative lift of a NICRA. One doing $2M+ across multiple agencies almost certainly does.
3. You have multiple awards or awarding agencies. A NICRA is portable — it follows you to every federal funder and pass-through entity, which saves you from re-justifying your overhead rate project by project.
4. You can produce clean, auditable cost data. NICRA negotiation requires a cost allocation plan, financial statements, and usually an indirect cost rate proposal built around your actual general ledger. If your books aren't there yet, fix that first.

The tradeoff is real: preparing a rate proposal and going through negotiation with your cognizant agency (often determined by whichever agency provides the most federal funding to you) takes time, usually several months, and some ongoing recordkeeping discipline afterward. For organizations juggling proposal writing, compliance tracking, and award management with a skeleton crew, that's often where the math stops penciling out — which is part of why most of our clients at InstaGovOps start on the de minimis rate and only move to NICRA once their federal revenue justifies it (book a 15-minute walkthrough if you want a second opinion on whether you're there yet).

How Pass-Through Entities Must Treat the De Minimis Rate

One of the more important enforcement points in the 2024 revision: pass-through entities must accept the 15% de minimis rate for subrecipients that don't have a NICRA, unless required by federal statute or regulation to do otherwise. Before this clarification, some primes and state agencies would try to impose a lower negotiated or "program" rate on subrecipients — sometimes 10%, sometimes less — effectively ignoring the subrecipient's entitlement. That's no longer compliant. If you're a subrecipient being told your indirect rate is capped below 15% without a legitimate statutory reason, that's worth pushing back on, citing 2 CFR 200.332 and 200.414 directly in your subaward negotiation.

Getting the Rate Right Before You Submit

Indirect cost treatment is one of the most common places small grantees lose money or trigger audit findings — either by overcharging MTDC-excluded categories, misapplying the $25,000 subaward cap, or failing to flag their de minimis election clearly in the budget justification. It's a small line item that auditors check closely because it's so often wrong.

This is exactly the kind of compliance detail that's easy to get wrong manually and expensive to get wrong on paper after the award is signed. InstaGovOps builds indirect cost treatment into every budget and budget justification it generates, flags MTDC exclusions automatically, and tells you when your cost structure suggests a NICRA conversation is worth having — all for a lot less than the fully loaded cost of a grants compliance analyst (see what InstaGovOps costs vs hiring this in-house).