Indirect Costs for Nonprofits: The De Minimis Rate vs. a Negotiated Indirect Cost Rate

Every nonprofit with federal awards pays for things no single program owns: rent, accounting, IT, insurance, the executive director's time. Those are real costs of running the awards, and the Uniform Guidance lets you recover part of them through an indirect cost rate. This guide is for anyone who has to decide how their organization charges those costs and wants to understand the two options before picking one. For the wider picture, see Uniform Guidance Compliance for Nonprofits.

The short answer

A nonprofit recovers indirect costs on federal awards in one of two ways:

1. The de minimis rate. If you do not have a negotiated rate, you can charge up to 15% of modified total direct costs (MTDC) under 2 CFR 200.414(f). It needs no documentation to justify it and can be used for as long as you want, but once you elect it, it applies to all your federal awards.
2. A negotiated indirect cost rate agreement (NICRA). You submit a proposal based on your actual costs to your cognizant agency for indirect costs, and, with limited exceptions, every federal agency and pass-through entity must accept the rate you agree on (200.414(c) and (d)).

The de minimis rate is the simpler path. A negotiated rate takes more work, but it reflects your real costs, which matters when they are well above 15% of MTDC.

Whichever you choose: each type of cost has to be either direct or indirect, consistently. The same kind of cost cannot be charged to one award directly and recovered through the rate on another.

What counts as an indirect cost

An indirect cost is one incurred for a common purpose that benefits more than one program and cannot be assigned to any of them without effort out of proportion to the result (2 CFR 200.1). The regulation gives typical examples for nonprofits in 200.414(b):

• Depreciation on buildings and equipment.
• Operating and maintaining facilities.
• General administration and general expenses, such as the salaries and expenses of executive officers, personnel administration, and accounting.

Because nonprofit accounting practices vary, the regulation does not fix a list. What decides it is the relationship between the cost and the award.

Administrative and clerical salaries are normally indirect costs (200.413(c)). They can be charged directly to an award only when all three of these are true:

1. 1The work is integral to the awardThe award could not be carried out without it.
2. 2The people can be identified with the awardYou can name who did the work and show it was for this award.
3. 3The cost is not also in your indirect rateThe same salary cannot be charged directly and recovered through the rate.

When it applies, the staff doing it need time and effort records like anyone else (see Time and Effort Reporting Under 2 CFR 200.430).

How the de minimis rate works

In practice, the de minimis rate works like this (2 CFR 200.414(f)):

• Up to 15%. You choose the rate, up to that limit. A federal agency or pass-through entity cannot force you to use a lower rate, unless a statute or regulation requires it.
• Applied to a reduced base, not to all your direct costs. The 15% is calculated on modified total direct costs (MTDC), which leave out costs such as equipment, rent, and most of every large subaward. The next section shows what counts.
• No documentation required. You do not have to prove your actual indirect costs reach 15%.
• No time limit. You can keep using it indefinitely.
• All or nothing. Once you elect it, you use it on all your federal awards until you negotiate a rate.
• Only if you have no negotiated rate. If you have a current negotiated rate, including a provisional one, the de minimis option is not available.
• Not for federal contracts. It cannot be applied to cost-reimbursement contracts issued directly by the federal government under the FAR.

Subrecipients have the same right: a pass-through entity has to let them elect the de minimis rate.

What MTDC includes and leaves out

Modified total direct costs is the base the de minimis rate is applied to. It is defined in 2 CFR 200.1:

When a negotiated rate makes sense

A negotiated indirect cost rate agreement is based on your organization's actual costs. Appendix IV to Part 200 sets the process for nonprofits:

• Who you negotiate with. Your cognizant agency for indirect costs is generally the federal agency that gives you the most direct federal funding. If you receive federal money only through pass-through entities, the pass-through entity negotiates with you instead.
• When the first proposal is due. An organization without a rate submits its first proposal as soon as it learns it will receive an award, and no later than three months after the award's effective date.
• When later proposals are due. Within six months after the end of each fiscal year, unless your cognizant agency approves otherwise.
• Who signs it. The proposal needs a certification signed by someone at the level of vice president or chief financial officer, or higher.
• How long it lasts. Once you have a rate, you can ask your cognizant agency for a one-time extension of up to four years (200.414(g)).

The agreement can set different types of rates. A predetermined rate is fixed for a period and not adjusted. A fixed rate with carry-forward is adjusted in a later period for the difference between estimated and actual costs. A provisional rate is temporary, used for billing until a final rate is set from actual costs.

	De minimis rate	Negotiated rate (NICRA)
Rate	Up to 15%	Based on your actual costs
Base	MTDC	Set in the agreement
Documentation	None to justify the rate	An indirect cost proposal with a signed certification
Duration	Indefinite	Renegotiated; one-time extension of up to four years
Applies to	All your federal awards, once elected	Must be accepted by federal agencies and pass-through entities, with limited exceptions

As a general guide, the de minimis rate fits an organization whose indirect costs are close to or below 15% of MTDC, or one that cannot yet support a full proposal. A negotiated rate is worth the work when your documented indirect costs are clearly higher, because the de minimis rate leaves the difference unrecovered.

Mistakes to avoid

• Applying 15% to all direct costs. The rate applies to MTDC. Equipment, rent, participant support, and the part of each subaward above $50,000 are outside the base.
• Counting whole subawards. Only the first $50,000 of each one counts, over the life of the subaward.
• Charging the same cost both ways. A cost recovered through the indirect rate cannot also be charged directly, on that award or on another (200.403(d) and 200.414(f)).
• Leaving unallowable costs in the indirect pool. The cost principles apply to indirect costs too. Organized fundraising, lobbying, and other unallowable costs cannot be recovered through the rate.
• Forgetting the disclosure. If you have a Single Audit, the notes to your schedule of expenditures of federal awards must say whether you elected the de minimis rate (200.510(b)(6)).

A note on what may change

On May 29, 2026, the Office of Management and Budget (OMB) proposed a rewrite of 2 CFR Part 200. The continuing appropriations act signed on September 2, 2026 prevents OMB from finalizing that rule through December 11, 2026. Until a final rule is published, the current text, including the 15% de minimis rate, is what applies, along with the terms of each award.

How WiseCost fits

WiseCost is time tracking and labor distribution software that works on top of QuickBooks Online. Besides government contractors, it is built for nonprofits and other recipients of federal grants that follow the Uniform Guidance. It has a Uniform Guidance compliance preset that sets strict timekeeping controls in one step, tracks each federal award with its period of performance and budget, and posts salaries to each award in QuickBooks Online based on the hours people actually recorded, which is the core of time and effort reporting under 2 CFR 200.430. For indirect costs, it keeps direct salaries on each award separate from administrative and fundraising time.

The rate itself, de minimis or negotiated, is a decision for your organization and your CPA. What WiseCost provides is the salary data behind it, on top of the QuickBooks Online you already use:

• Direct and administrative salaries kept apart. Staff record time to each award and to internal accounts such as administration, and Labor Distribution posts each salary to QuickBooks Online the same way. For staff who log their time, direct salaries, often the largest part of the MTDC base, come from approved hours rather than estimates.
• Fundraising time recorded on its own. Fundraising gets its own class or project, staff record that time there, and Labor Distribution posts those salaries to it. That way, organized fundraising, which is unallowable, is recorded separately from your awards and your administrative costs, so it can be left out of both.
• Each award with its own budget. Each award is a class or project with its period of performance and budget, tracked in the Budget vs Actual by Contract report.

Setup steps are in Setting up WiseCost for the Uniform Guidance.

FAQ

The Bottom Line

The de minimis rate is the simplest way for a nonprofit to recover indirect costs: up to 15% of MTDC, no proposal, no expiration. Its limit is that it ignores your real costs, and its base leaves out equipment, rent, participant support, and most of every large subaward. If your indirect costs are clearly above what it recovers, a negotiated rate is how you get paid for them. Either way, the rate is only as good as the line between direct and indirect costs in your books, and that line starts with knowing where each person's time went.

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See how salaries post by award and by activity on your own books: book a demo, or start a 14-day trial of WiseCost on the QuickBooks Online you already run. No credit card required.

Official Sources

• Indirect costs and the de minimis rate: 2 CFR 200.414
• Definitions of MTDC and indirect cost: 2 CFR 200.1
• Administrative and clerical salaries as direct costs: 2 CFR 200.413
• Indirect cost proposals for nonprofits: Appendix IV to 2 CFR Part 200
• The schedule of expenditures of federal awards: 2 CFR 200.510
• Status of the 2026 proposed rule: BDO, What the Continuing Resolution Means for OMB's Proposed Uniform Guidance Rewrite