Nonprofit

What Nonprofits Need to Know About the Increase to the De Minimis Indirect Cost Rate

For nonprofits that receive federal funding, indirect costs are a fact of life. Rent, utilities, administrative salaries, and other overhead expenses support every grant-funded program but are not always easy to recover.

To help, the Office of Management and Budget (OMB) allows nonprofits that don’t have a federally negotiated indirect cost rate to use a simplified method: the de minimis indirect cost rate. As of October 1, 2024, that rate is increasing from 10% to 15% under the 2024 revisions to the Uniform Guidance.

This change is a meaningful win for nonprofits, but it also comes with a few rules and practical considerations.

What Changed?

Under 2 C.F.R. §200.414(f), nonprofits that do not have a current federally negotiated indirect cost rate may elect to charge a de minimis rate of up to 15% of Modified Total Direct Costs (MTDC). Previously, that cap was 10%. The increase applies to new federal awards issued on or after October 1, 2024.

Why It Matters?

The 5% increase may not sound like much, but it can have a real impact on your organization’s ability to recover administrative costs.

For nonprofits without a negotiated rate, especially smaller organizations, this change means more funds can go toward essential overhead, improving cash flow, sustainability, and budgeting accuracy.

Key Details to Understand

1). MTDC matters. The de minimis rate is applied to Modified Total Direct Costs (MTDC), which is your total direct costs minus certain exclusions such as:

  • Equipment and capital expenditures
  • Patient care charges
  • Rental costs
  • Tuition remission, scholarships, and fellowships
  • Participant support costs
  • The portion of subawards above $50,000

Correctly identifying these exclusions is critical for an accurate calculation.

2). Documentation isn’t required, but controls are.You do not need to justify your choice to use thede minimis rate, but you do need strong internal controls. Costs must be charged consistently, and you should clearly document your MTDC calculation and invoicing process. Auditors may test these calculations during your Single Audit, if applicable.

3). The 15% rate depends on the award date.The new rate applies to awards issued on or after October 1, 2024. Older awards will only use the new rate if the awarding agency amends them to adopt the 2024 revisions. This is determined on an award-by-award basis, and the same rule applies to subawards.

4). You cannot use it if you have an active NICRA.If your nonprofit has aNegotiated Indirect Cost Rate Agreement (NICRA), you must wait for it to expire or work with your cognizant agency to formally terminate it before switching to the de minimis rate.

What Your Finance Team Should Do Now

  • Review your active federal awards.Determine which ones qualify for the 15% rate based on their issue or amendment dates.
  • Check your MTDC calculation.Create or update a worksheet that properly excludes non-allowable costs and keep documentation with your invoices.
  • Strengthen your internal controls.Implement a review process for MTDC and reimbursement requests to catch errors early.
  • Evaluate your NICRA strategy.If you currently have a NICRA, compare your negotiated rate to the 15% de minimis to see which provides a better recovery.
  • Train your team.Make sure grants and program staff understand how indirect costs are budgeted and billed under the updated rule.

Audit Reminders

Auditors will likely verify that:

  1. No active NICRA was in place when thede minimis rate was used.
  2. MTDC was calculated correctly and consistently.

Keeping clear, contemporaneous documentation will make this process much smoother.

The Bottom Line

The increase to a 15% de minimis indirect cost rate is a positive change for many nonprofits, offering better recovery for overhead costs. To take advantage, you’ll need to confirm which awards qualify, ensure MTDC is calculated properly, and maintain strong internal controls.

A bit of upfront analysis can help your organization make the most of this opportunity and ensure compliance along the way.

D+L: Helping Nonprofits Maximize Cost Recovery

At Dugan + Lopatka CPAs, our nonprofit specialists help organizations navigate complex grant and cost recovery rules. We assist with MTDC calculations, NICRA decisions, and internal control design so you can maximize indirect cost recovery and stay audit-ready.

With more than 50 years of experience serving nonprofits, we provide the technical expertise and practical insight you need to strengthen financial performance and compliance.

That’s Accounting for What Matters.

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