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Plain-English guide · for nonprofits
2 CFR 200.414, explained in plain English
Updated September 2026
If you have no current negotiated indirect cost rate, §200.414(f) lets you charge up to 15% for overhead. The 15% is of modified total direct costs, and you need no paperwork to justify it. The rate was 10% before the October 2024 revision.
Why this section matters more than its length suggests
Indirect costs are the real costs of running your organization that no single grant pays for: the bookkeeper, the rent, the insurance, the person who answers the phone. Grants fund programs. Something has to fund the organization that delivers them. These are the third kind of cost in §200.405 on allocable costs: necessary to the whole operation, and assignable to each award only in part.
§200.414, part of the Uniform Guidance, is the section that says you are allowed to charge some of it. A small nonprofit may skip it, because it did not know it could, or because it assumed this required a negotiation it had no capacity for. It does not.
The de minimis rate, verbatim
“Recipients and subrecipients that do not have a current Federal negotiated indirect cost rate (including provisional rate) may elect to charge a de minimis rate of up to 15 percent of modified total direct costs (MTDC).”
Four things follow from the text, and each one matters:
- “Up to.” You may elect a lower rate. 15% is a ceiling, not an entitlement.
- The election is all or nothing. Once you elect the de minimis rate, §200.414(f) requires you to use it on all your federal awards until you move to a negotiated rate. Charging 15% on one grant and nothing on another is not compliant. Decide once, across the portfolio.
- “Do not have a current negotiated rate.” The moment you have one, the de minimis option closes. You use your negotiated rate.
- No documentation required to justify it. The regulation says so explicitly, and it may be used indefinitely. You do not build a cost allocation plan to support the de minimis rate. That is the entire point of it.
One limit worth knowing: the de minimis rate does not apply to cost reimbursement contracts issued directly by the federal government.
Modified total direct costs is not your total budget
The rate is 15% of MTDC, and MTDC is a specific, narrower number than your direct costs. From §200.1:
| In the MTDC base | |
|---|---|
| Included | Direct salaries and wages, applicable fringe benefits, materials and supplies, services, travel, and up to the first $50,000 of each subaward |
| Excluded | Equipment, 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 |
Rent is excluded, even though rent feels like the definitive indirect cost. It is excluded from the base you multiply by, not from what the rate is meant to cover.
Working it through
A program budget has $180,000 of salaries and fringe, $20,000 of supplies and travel, $30,000 of rent, and one $70,000 subaward.
MTDC = $180,000 + $20,000 + $50,000 (the first $50,000 of the subaward) = $250,000. Rent is out; $20,000 of the subaward is out.
Indirect at 15% = $37,500.
Applying 15% to the full $300,000 would have given $45,000, which is $7,500 you are not entitled to and an auditor will find.
Federal agencies must accept a negotiated rate
If you do go through a negotiation, §200.414(c)(1) protects the result: negotiated indirect cost rates must be accepted by all federal agencies, with narrow exceptions where a statute or regulation requires otherwise or the awarding agency approves a deviation under specified conditions.
This matters for pass-through money too. A pass-through entity cannot simply refuse to honor your rate because its own budget is tight. If you have a negotiated rate, or you have elected the de minimis rate, that is what applies to the subaward.
And once you have a negotiated rate, §200.414(g) lets you apply for a one-time extension of up to four years rather than renegotiating. During the extension you may not request a rate review until it ends.
Common slips, and the fix
- Charging zero indirect. Not a compliance problem, but it is a slow way to run out of money. If the grant allows it, budget it.
- Applying the rate to total costs instead of MTDC. An arithmetic error that overcharges the grant.
- Using 10% because the template said so. Check the date on whatever you are copying from.
- Double-charging. A cost cannot go on the grant as a direct cost when a cost for the same purpose in like circumstances sits in your indirect pool. That is the consistency test in §200.403. If the bookkeeper is in your indirect pool, they cannot also be a line item on the grant.
- Electing de minimis while holding a negotiated rate. You cannot pick the better of the two.
This is general information, not legal or accounting advice. Federal grant rules change and are applied differently by different agencies and auditors. Check with your auditor, your grant officer, or an attorney before relying on any of it.
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Sources: 2 CFR Part 200 (eCFR), §200.414 and the MTDC definition at §200.1. Verified 27 September 2026. Read the sections themselves before relying on any summary.