Calculating indirect costs (Facilities & Administrative, or F&A, costs) on a US federal grant budget is arithmetic layered on top of a definitions problem: get the direct cost base wrong and the dollar figure is wrong even if the multiplication is correct. This guide walks through the calculation itself — identifying the direct cost base, applying the Modified Total Direct Cost (MTDC) exclusions required under the Uniform Guidance at 2 CFR Part 200, applying the negotiated rate, and producing the final F&A dollar amount — with a full worked numeric example. For how to build the rest of a research budget category by category, see how to build a research grant budget; for the underlying cost-principles framework this calculation sits inside, see 2 CFR 200 Subpart E: the cost principles governing federal grant costs.
Direct costs vs. indirect (F&A) costs: the distinction that drives the calculation
Every dollar in a federal grant budget is either a direct cost or an indirect cost, never both. Direct costs (2 CFR 200.413) are costs that can be identified specifically with a particular project or assigned to it with a high degree of accuracy — personnel salary and effort, project-specific supplies and equipment, travel, and subawards. Indirect costs, also called Facilities and Administrative (F&A) or overhead costs (2 CFR 200.414), are costs incurred for common or joint purposes that benefit more than one project and cannot be readily assigned to a single one — building depreciation and operations, utilities, library services, and departmental and central administration. Rather than itemizing these line by line on every award, an institution recovers them through a single negotiated percentage applied to a defined cost base. That percentage comes from a Negotiated Indirect Cost Rate Agreement (NICRA), agreed between the institution and its cognizant federal agency (for most institutions of higher education, HHS’s Division of Cost Allocation) following the rate-proposal process set out in 2 CFR Part 200, Appendix III (institutions of higher education) or Appendix IV (nonprofit organizations). Once negotiated, every federal agency funding that institution is expected to honor the same rate on new awards, absent a specific statutory or agency exception.
An institution with no negotiated rate at all can generally elect a flat de minimis rate instead, in lieu of going through the full proposal process — see CASRAI’s de minimis indirect cost rate guide for eligibility and the current government-wide and NIH-specific figures, which have changed more than once in the past two years and are easy to cite incorrectly if not checked against the specific award.
Step 1: Total your direct costs
Before any F&A calculation is possible, build out every direct cost category the project needs: personnel salary and fringe benefits, equipment, travel, supplies and materials, subawards, participant or patient costs, and other direct costs. This step is covered in full, category by category, in the companion how to build a research grant budget guide — this page picks up once that total direct cost figure exists and focuses specifically on what happens next: converting it into the indirect cost base and applying the rate.
Step 2: Identify the cost base your negotiated rate applies to
A NICRA doesn’t apply a percentage to every direct dollar — it applies to a specific, defined base, and getting the base wrong is the single most common F&A calculation error. The overwhelming majority of negotiated rates at US institutions of higher education are expressed as a percentage of Modified Total Direct Costs (MTDC), defined at 2 CFR 200.1, rather than of total direct costs. A smaller number of institutions or specific negotiated agreements use a Total Direct Cost (TDC) base or a salaries-and-wages base instead — always confirm which base a given institution’s current NICRA actually specifies before running the calculation, rather than assuming MTDC by default. Many institutions also negotiate separate on-campus and off-campus rates, since off-site work draws less on the institution’s own facilities; using the wrong rate for where the work is actually performed is a related, equally common error.
Step 3: Compute the MTDC base — what’s excluded
Modified Total Direct Costs starts from total direct costs and then subtracts a specific, regulation-defined list of items, because these items either don’t proportionately draw on the institution’s shared facilities and administration, or would distort the base if included at full value. Per the MTDC definition at 2 CFR 200.1, MTDC excludes:
- Equipment — tangible property with a useful life of more than one year and a per-unit acquisition cost at or above the institution’s capitalization threshold or $10,000, whichever is lower (2 CFR 200.1’s equipment definition).
- Capital expenditures more broadly, including alterations and renovations.
- The portion of each subaward in excess of a per-subaward cap — only the capped portion of each individual subaward counts toward the prime recipient’s own MTDC base, regardless of the subaward’s total value or period of performance. This cap is not the same figure for every federal agency right now, and it is worth confirming carefully before budgeting: the general, government-wide Uniform Guidance threshold is $50,000 per subaward, per the 2 CFR 200.1 revision effective October 1, 2024 (89 FR 30136, 89 FR 79732), and applies to most federal agencies. NIH is a specific, longstanding exception: a standing appropriations rider ties NIH’s own indirect-cost provisions to FY2017 treatment. NIH briefly adopted the $50,000 threshold in 2025 (NOT-OD-25-059) before rescinding it in April 2026 (NOT-OD-26-072), reverting NIH specifically to a $25,000 per-subaward cap and a 10% (not 15%) de minimis rate. Do not assume $50,000 applies government-wide without checking, and do not assume $25,000 applies outside NIH — confirm the correct figure against the specific funding agency’s current policy.
- Patient care costs in clinical research.
- Tuition remission and other forms of student aid, including scholarships and fellowships.
- Rental costs of off-site facilities.
- Participant support costs — stipends, subsistence, travel, and related costs for participants in training or conference activities.
Everything else in the direct cost total — salaries and wages, applicable fringe benefits, materials and supplies, services, travel, and the capped portion of each subaward — stays in the MTDC base. The resulting formula:
MTDC = Total direct costs − (equipment + capital expenditures + subaward amounts over the applicable per-subaward cap + patient care costs + tuition remission/student aid + off-site rental costs + participant support costs)
Step 4: Apply the negotiated rate
Once the MTDC base is computed, the arithmetic itself is straightforward:
F&A dollar amount = MTDC base × negotiated F&A rate
Total budget request = Total direct costs + F&A dollar amount
Note that the F&A dollar amount is added on top of total direct costs (including the items excluded from the MTDC base), not on top of the MTDC base itself — the exclusions only affect what the rate is calculated against, not what the F&A dollars get added to.
Worked example
Illustrative example, not a real application. The scenario, cost figures, and negotiated rate below are a composite, round-number illustration chosen to demonstrate the calculation mechanics — not drawn from, or attributed to, any specific real grant, institution, or NICRA. This example uses the general, non-NIH $50,000 per-subaward MTDC cap described above; substitute $25,000 if budgeting for an NIH award. Always confirm your own institution’s actual negotiated rate, base type, and current MTDC exclusions with its sponsored-programs or cost-accounting office before using any figure from this page in a real budget.
A principal investigator is building a Year 1 budget with the following direct costs, and the institution’s NICRA specifies a 55% rate on an MTDC base:
| Direct cost category | Amount | Included in MTDC? |
|---|---|---|
| Personnel (salary + fringe) | $150,000 | Yes — full amount |
| Equipment | $40,000 | No — excluded |
| Travel | $10,000 | Yes — full amount |
| Supplies | $15,000 | Yes — full amount |
| Subaward (total value $60,000) | $60,000 | Only first $50,000; $10,000 excluded |
| Participant support costs | $10,000 | No — excluded |
| Tuition remission | $5,000 | No — excluded |
| Total direct costs | $290,000 | — |
Computing the MTDC base:
$150,000 (personnel) + $10,000 (travel) + $15,000 (supplies) + $50,000 (subaward, capped) = $225,000 MTDC base.
Equivalently, working from the exclusions: $290,000 total direct costs − $40,000 (equipment) − $10,000 (subaward amount over the $50,000 cap) − $10,000 (participant support) − $5,000 (tuition remission) = $225,000. Both routes have to produce the same number — if they don’t, an exclusion was applied inconsistently somewhere.
Applying the rate:
F&A dollar amount = $225,000 × 55% = $123,750.
Total budget request:
$290,000 (total direct costs) + $123,750 (F&A) = $413,750.
If this were an NIH award instead, the $25,000 cap would apply: only $25,000 of the $60,000 subaward would count, the MTDC base would drop to $200,000, the F&A dollar amount to $110,000, and the total budget request to $400,000. The cap actually in force for the specific award changes the answer meaningfully — it is not a rounding difference.
Common calculation pitfalls
- Applying the rate to total direct costs instead of MTDC. This is the single most common error and it overstates the F&A request — in the general-case worked example above, applying 55% to the full $290,000 instead of the $225,000 MTDC base would overstate the F&A dollar amount by $35,750.
- Assuming one subaward cap applies to every federal agency. The general Uniform Guidance per-subaward cap is $50,000; NIH is a specific, appropriations-driven exception at $25,000 (and a 10%, not 15%, de minimis rate) as of NOT-OD-26-072 (April 2026). Using the wrong figure for the awarding agency misstates the MTDC base in either direction.
- Forgetting the subaward cap entirely. Every dollar of a subaward beyond the applicable per-subaward cap has to come out of the MTDC base, no matter how large the subaward is or how many years it runs. A budget that includes a $200,000 subaward at full value in the MTDC base, instead of applying the $50,000 general cap, has overstated the base by $150,000 (or by $175,000 under NIH’s $25,000 cap).
- Misclassifying equipment. An item below the $10,000 (or lower institutional) capitalization threshold is a supply, not equipment, and stays in the MTDC base; an item at or above the threshold is equipment and comes out. Getting this backwards in either direction throws off the base.
- Using the wrong rate for where the work happens. Institutions with separate on-campus and off-campus negotiated rates need the budget to reflect where the funded work is actually performed, not a default assumption.
- Using an expired or superseded NICRA rate. Negotiated rates typically run for a fixed multi-year period and then have to be renegotiated; a budget built against a rate that has since lapsed or changed produces a figure the institution’s own finance office won’t be able to support at award setup.
- Assuming the full negotiated rate always applies. Some funders — certain foundations, training-grant mechanisms, and some cooperative agreements — cap the allowable F&A rate below an institution’s federally negotiated rate as a condition of the specific program. Always check the funding opportunity’s own budget instructions rather than defaulting to the negotiated rate.
- Double-counting cost-shared items. Direct costs voluntarily or mandatorily contributed as cost share still have to be classified and, where applicable, run through the same MTDC exclusions — they don’t get a free pass from the base calculation just because they aren’t being billed to the sponsor.
A brief note on non-federal funders
The MTDC-and-NICRA mechanics above are specifically a US federal Uniform Guidance framework. Private foundations are not bound by 2 CFR 200 and commonly cap indirect cost recovery well below what an institution’s federally negotiated rate would produce — often expressed as a flat percentage of total project costs rather than of an MTDC base, with no itemized exclusion calculation required at all. That contrast, including how specific foundations structure their own indirect cost policies, is covered in full in CASRAI’s dedicated Foundation vs. Federal Indirect Cost Rates comparison; this page’s scope is the calculation mechanics under the federal framework specifically.
Frequently asked questions
What’s the difference between MTDC and TDC?
Modified Total Direct Costs (MTDC) is total direct costs minus the specific exclusions listed in 2 CFR 200.1 (equipment, capital expenditures, the subaward amount over the applicable per-subaward cap, patient care costs, tuition remission, off-site rental, and participant support costs). Total Direct Costs (TDC) is the unmodified full direct cost figure with no exclusions applied. Most US institutions of higher education negotiate an MTDC-based rate, but a specific institution’s actual NICRA is what determines which base to use — never assume.
Do I apply the F&A rate before or after fringe benefits are added to salary?
After. Fringe benefits are part of the personnel direct cost figure that flows into the MTDC base — salaries and wages plus applicable fringe benefits are both included in MTDC, so the rate is applied to the combined salary-plus-fringe personnel total, not to salary alone.
What if my institution doesn’t have a negotiated rate?
An organization that has never received a negotiated indirect cost rate can generally elect the de minimis rate instead, without going through the full rate-proposal process. See CASRAI’s de minimis indirect cost rate guide for current eligibility and rate figures, which vary by agency and have changed more than once recently.
Does the subaward cap apply per subaward or per award overall?
Per subaward, not per award. Under the general, non-NIH government-wide threshold, if a project has three separate $70,000 subawards, $50,000 of each counts toward the prime’s MTDC base ($150,000 total), not $50,000 across all three combined. NIH awards use a $25,000 per-subaward cap instead of $50,000, applied the same way — per subaward, not per award. Confirm which cap applies to the specific funding agency before running the calculation.
Is the subaward cap the same figure for every federal agency?
No, and this is a common source of budgeting errors as of 2026. Most federal agencies follow the general 2 CFR 200.1 Uniform Guidance threshold of $50,000 per subaward, set in the revision effective October 1, 2024. NIH is a specific exception: a standing appropriations rider ties its indirect-cost provisions to FY2017 treatment, and NIH’s April 2026 notice NOT-OD-26-072 rescinded its brief 2025 adoption of the $50,000 threshold, reverting NIH specifically to $25,000. Confirm the current figure against the specific awarding agency’s own guidance rather than assuming either number applies universally.
Can a funder require a lower F&A rate than my institution’s negotiated rate?
Some can. A small number of federal mechanisms and many private foundations cap allowable F&A below an institution’s negotiated rate as a condition of the specific funding opportunity. Always confirm against the funding opportunity’s own budget instructions before assuming the full negotiated rate is payable on a given award.
