NICRA Vocabulary: Essential Terms for Nonprofits and Local Governments

Clarity on indirect costs saves time, reduces audit risk, and strengthens your funding strategy. This guide defines the core NICRA terms your team needs to communicate clearly across finance, grants, and program teams and to negotiate and apply your rate with confidence.

Whether you manage a single federal award or a portfolio with multiple pass-through subawards, a shared vocabulary ensures consistent budgeting, reporting, and compliance. Use this glossary to align your internal processes and to set expectations with funders and partners.

Of not, these definitions align with the Uniform Guidance (2 CFR 200). Program-specific rules or variations may apply.

How to use this guide

• Start with the building blocks (direct vs. indirect costs, pool, base).

• Use the formulas to check budgets and claims before submission.

• Share definitions with staff and subrecipients to standardize language.

Core NICRA Concepts

Negotiated Indirect Cost Rate Agreement (NICRA)

A formal agreement between an organization and a federal cognizant agency that establishes the approved indirect cost rate(s) and the applicable base, methodology, and period covered.

Example: A city department uses its NICRA to apply the approved rate to eligible costs on a federal grant.

Indirect Costs

Costs incurred for common or joint objectives that cannot be readily identified with a specific project, program, or activity.

Example: Finance staff time supporting multiple grants is an indirect cost.

Direct Costs

Costs that can be identified specifically with a particular final cost objective (e.g., a project, program, or activity).

Example: A program coordinator’s time spent solely on one grant is a direct cost.

Indirect Cost Rate (ICR)

A percentage applied to an approved base to recover indirect costs.

Formula: Indirect Cost Rate = Indirect Cost Pool ÷ Indirect Cost Base

Example: If the pool is $300,000 and the base is $1,000,000, the rate is 30%.

Indirect Cost Pool

The accumulated indirect costs subject to allocation over one or more cost objectives, consistent with the approved rate methodology.

Example: Administration or leadership salaries, accounting software, and occupancy supporting all programs compose the pool.

Indirect Cost Base

The measure to which the indirect cost rate is applied (e.g., Modified Total Direct Costs (MTDC), salaries and wages, or total direct cost), as approved in the NICRA.

Example: If your base is MTDC, you apply the rate only to eligible direct costs within the MTDC definition.

Modified Total Direct Cost (MTDC)

A commonly approved base that includes all direct salaries and wages, applicable fringe benefits, materials and supplies, services, travel, and up to the first $50,000 of each subaward (updated October 1, 2024 in the Uniform Guidance). MTDC excludes equipment, capital expenditures, patient care, rental costs, tuition remission, scholarships and fellowships, participant support costs, and the portion of each subaward above $50,000.

Example: A $100,000 subaward contributes only $50,000 to the MTDC base.

Total Direct Cost (TDC)

All direct costs without the MTDC exclusions. TDC is used only if approved in the NICRA.

Example: If TDC is your base, you include all direct costs in the base calculation.

Cost Objective

A program, grant, contract, function, or other activity for which cost data are needed and for which costs are accumulated.

Example: A single federal award is a final cost objective.

Allocation

The process of assigning costs to one or more cost objectives in reasonable proportion to the benefits received.

Example: Allocating shared copier costs to programs based on total staff hours per program.

Allowable Cost

A cost that is necessary, reasonable, allocable, and compliant with the Uniform Guidance and the terms of the award.

Example: Required audit costs are allowable when consistent with policy and award terms.

Unallowable Cost

A cost that cannot be charged to federal awards under the Uniform Guidance or award terms.

Example: Alcoholic beverages are unallowable.

Directly Associated Costs

Costs that are incurred solely as a result of incurring another cost. If the primary cost is unallowable, the directly associated cost is also unallowable.

Example: Payroll taxes on unallowable compensation are also unallowable.

Fringe Benefits

Compensation in addition to regular salaries and wages, such as health insurance, retirement, and payroll taxes. Fringe can be treated as direct or indirect, depending on your approved methodology.

Example: Employer FICA and health insurance tied to program staff are direct fringe costs.

Facilities and Administration (F&A)

A term often used by institutions of higher education to describe indirect costs. Facilities generally include depreciation and operations; Administration includes general administration and expenses.

Example: An F&A rate is functionally equivalent to an indirect cost rate.

Agencies, Partners, and Roles

Cognizant Agency for Indirect Costs

The federal agency responsible for negotiating and approving your NICRA, typically the agency providing the largest direct federal funding to your organization.

Example: If your largest direct federal award is from HHS, HHS is likely your cognizant agency.

Pass-Through Entity (PTE)

A non-federal entity that receives a federal award and provides a subaward to a subrecipient to carry out a program.

Example: A state agency subawards federal funds to a county department.

Subrecipient

An entity that receives a subaward from a PTE to carry out part of a federal program; subject to programmatic compliance requirements.

Example: A nonprofit delivering program services under a county’s federal grant is a subrecipient.

Contractor

An entity that provides goods or services for the non-federal entity’s own use; not subject to programmatic compliance requirements of the award.

Example: A consultant hired to build a reporting dashboard is a contractor.

Rate Types and Negotiation

Provisional Rate

A temporary indirect cost rate applied to funding actions pending negotiation of a final rate for the period.

Example: You bill at the provisional rate during the year and settle to the final rate after negotiation.

Final Rate

An indirect cost rate applicable to a specified past period based on actual costs, not subject to adjustment.

Example: After year-end, your final rate is negotiated and used to close out the period.

Predetermined Rate

An indirect cost rate, applicable to a specified future period, based on an estimate and not subject to adjustment.

Example: If approved, you apply the predetermined rate without later reconciliation.

Fixed Rate with Carryforward

A fixed indirect cost rate for the period, with adjustments (carryforward) in a subsequent period to account for under- or over-recovery.

Example: Over-recovered indirect costs this year reduce the allowable indirect costs next year via carryforward.

Carryforward

The mechanism used to adjust for differences between indirect costs recovered and indirect costs actually incurred under a fixed-with-carryforward rate.

Example: A positive carryforward increases next period’s pool to true-up prior under-recovery.

Rate Agreement (NICRA Letter)

The official document stating the approved rate(s), base, period covered, and any special terms or restrictions.

Example: Your NICRA letter specifies a 28% MTDC rate and the period it covers.

Indirect Cost Proposal (ICP)

The cost documentation submitted to the cognizant agency to justify and negotiate the indirect cost rate. This is sometimes referred to as an Indirect Cost Rate Proposal (ICRP) as well.

Example: Your ICP includes the pool, base, allocation methods, and supporting schedules.

Bases, Methods, and Applications

On-Site Rate

An indirect cost rate that applies when activities occur in facilities owned or directly leased by the organization.

Example: Staff based at headquarters apply the on-site rate to eligible costs.

Off-Site Rate

An indirect cost rate that applies when activities occur primarily at locations not owned or directly leased by the organization, and where certain facility costs are not incurred.

Example: Field work conducted at partner facilities may use an off-site rate.

Multiple Rates

Distinct indirect cost rates approved for different functions or locations (e.g., on-site vs. off-site, program vs. administration), as specified in the NICRA.

Example: A 26% on-site MTDC rate and a 20% off-site MTDC rate.

Salary and Wages (S&W) Base

An approved base that includes only direct salaries and wages (and sometimes applicable fringe) to which the rate is applied, rather than MTDC or TDC.

Example: If your base is S&W, you apply the indirect rate only to direct salaries and wages in the base.

Cost Allocation Plan (CAP)

A documented methodology describing how shared costs are allocated across benefitting activities. Be careful with this definition! Some people refer to the NICRA proposal itself as the Cost Allocation Plan. These are not the same thing. 

Example: The CAP explains how IT, rent, and utilities are distributed to programs.

Allocation Methodology

The basis used to distribute shared costs, such as square footage, headcount, or direct labor hours, consistent with the CAP and the Uniform Guidance.

Example: Rent is allocated based on occupied square footage.

Special Topics and Common Choices

15% De Minimis Rate

A standard rate of 15% of MTDC that non-federal entities without a current negotiated rate may elect to use indefinitely, unless a NICRA is negotiated. This was updated from 10% in the October 1, 2024 changes to the Uniform Guidance. 

Example: A small nonprofit without a NICRA charges 15% of MTDC across federal awards.

Choosing De Minimis vs. NICRA

Elect de minimis for simplicity when indirect costs are modest; pursue a NICRA when actual indirect costs materially exceed 15% of MTDC.

Example: If your true indirect burden is ~25% of MTDC, negotiating a NICRA may recover more costs.

Administrative Costs vs. Indirect Costs

Administrative costs are defined by specific program rules and may include both direct and indirect costs; indirect costs are defined by cost principles and your NICRA.

Example: A statutory cap on “administration” does not automatically equal a cap on indirect costs. This is a common misconception. 

Direct Charging of Administrative Staff

Administrative staff may be charged direct only when their time benefits a specific cost objective and is documented accordingly; otherwise, charge to the indirect pool.

Example: A grants manager directly supporting one award may be direct-charged for those specific hours with proper timekeeping.

Quick Reference Formulas

• Indirect Cost Rate = Indirect Cost Pool ÷ Indirect Cost Base

• Indirect Costs Charged = Approved Rate × Eligible Base Costs

• MTDC Base = Eligible Direct Costs − MTDC Exclusions + First $25,000 of each subaward

TIP: Ensure budgeted base excludes items not allowed in MTDC, and apply the rate only to the approved base.

Practical Examples

• Applying the Rate: If your MTDC base for a grant is $400,000 and your NICRA is 24% MTDC, you may charge $96,000 in indirect costs.

• Subawards in MTDC: For two subawards of $60,000 each, only $100,000 total ($50,000 per subaward) enters the MTDC base.

• Off-Site Work: If most work is conducted at a partner facility without your occupancy costs, apply the approved off-site rate per your NICRA.

The Grant Project Perspective

Using consistent NICRA vocabulary strengthens internal controls, improves budgeting accuracy, and reduces rework during audits and monitoring. The correct rate, applied to the correct base, protects your operating capacity and helps your team deliver on program outcomes.

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