Indirect Cost Information and Resources

As a recipient of EPA funding, understanding and applying Indirect Costs are an important part of grant management. EPA has provided the below information to help recipients not only learn the basics of Indirect Cost, but their applicability and management in relation to their EPA grant.

On this page:

Indirect Cost vs Indirect Cost Rate
Example in Action
Sample Indirect Cost Rate Agreement
Cognizant Federal Agency for Indirect Costs
Indirect Cost Policy and Guidance for Recipients of EPA Assistance Agreements
Indirect Cost Rate Proposal
How to Prepare an Indirect Cost Rate Proposal for a Non-Profit Organization
MTDC Tool to Assist Recipients Properly Apply the De Minimis Rate
Applicable Guidance and Resources

Indirect Cost vs Indirect Cost Rate

The Code of Federal Regulations (CFR) defines Indirect Costs as:

Costs incurred for a common or joint purpose benefiting more than one cost objective, and not readily assignable to the cost objectives specifically benefited, without effort disproportionate to the results achieved.

Examples of indirect costs include the following:

Costs of operating and maintaining facilities
Depreciation on general buildings and equipment
Human resources services
Accounting services

Since indirect costs are not easily assignable, an indirect cost rate is calculated to allocate a recipient’s allowable indirect costs to all their cost objectives that benefitted from those costs. The indirect cost rate is calculated by dividing the total indirect cost pool by the applicable direct cost base.

Indirect Cost Rate = Total Allowable Indirect Costs/Direct Cost Base

Direct Cost Base Options:

Modified Total Direct Costs (MTDC)
Direct Salaries
Direct Salaries plus applicable Fringe Benefits

EPA has several grant programs with administrative cost limitations or other legal limits on indirect costs. These programs impose limits on how much of the grant funding can be used for administrative costs. Since Indirect Costs are typically considered administrative costs, these restrictions can impact allowable indirect costs. The EPA grant programs with Statutory Restrictions on Indirect Costs are listed here.

For further information on Indirect Cost Rate, its applicability, and how EPA utilizes this tool, recipients are encouraged to review the Indirect Cost Policy for Recipients of EPA Assistance Listings.

Example in Action:

To budget for indirect costs your approved indirect cost rate is applied to your approved direct cost base. Your negotiated indirect cost rate agreement will include your approved rate and define your approved base in Section I of your Agreement. If you are using the de minimis rate instead of a Federally negotiated rate, the rate is applied to your modified total direct costs as defined in 2 CFR Part 200.1. Included below is a sample rate agreement and award budget to demonstrate how to calculate the amount of allowable indirect costs to include in the budget.

Sample Indirect Cost Rate Agreement

SECTION I: RATES

Start Date	End Date	Rate Type	Rate	Base	Location	Applicable to
7/01/2025	6/30/2026	Provisional	18%	(A)	All	All Programs

Base: (A) MTDC Base: all direct salaries and wages, applicable fringe benefits, materials and supplies, services, travel, and up to the first $50,000 of each subaward (regardless of the period of performance of the subawards under the award). The base excludes equipment, capital expenditures, charges for patient care, rental costs, tuition remission, scholarships and fellowships, participant support costs and the portion of each subaward in excess of $50,000.

Budget Object Class	Amount Requested	Allowed in the MTDC base
Salaries	$80,000	$80,000
Fringe Benefits:	$15,000	$15,000
Supplies:	$5,000	$5,000
Subawards:
XYB	$55,000	$50,000
YBX	$25,000	$25,000
Capital Equipment	$10,000
Participant Support Costs	$5,000
Total Direct Costs	$195,000

MTDC = Salaries + fringe benefits + supplies + up to the first $50,000 of each subaward

$80,000 + $15,000 + $5,000 + $50,000 + $25,000 = $175,000

Allowable Indirect Costs = $175,000 x 18% = $31,500 (IDC)

Cognizant Federal Agency for Indirect Costs:

The Cognizant agency for indirect costs is the Federal agency responsible for reviewing, negotiating, and approving indirect cost proposals on behalf of the entire Federal government. Typically, the cognizant agency is the Federal agency that provides the largest dollar value of direct Federal awards to a recipient.

Recipients that want to recover indirect costs on an EPA award must have a current approved rate and an EPA approved budget that includes indirect costs. Approved indirect cost rates are defined in Section 6.1 of EPA’s Indirect Cost Rate Policy for Recipients of EPA Assistance Agreements. If the period of performance for your EPA award covers more than one fiscal year, then the indirect cost rate you use to recover indirect costs will typically change as your fiscal year changes.

Indirect Cost Policy and Guidance for Recipients of EPA Assistance Agreements:

EPA has developed a policy for recipients to reference and utilize prior to drawing down EPA funds for indirect costs (IDCs) and/or using unrecovered indirect costs (IDCs) as cost-share/match.

Recipients can access the Indirect Cost Policy and Guidance for Recipients of EPA Assistance Agreements via RAIN-2018-G02-R2 as well as learn more about the policy, applicability, and view related resources.

Indirect Cost Rate Proposal:

EPA is the cognizant Federal agency for around 50 non-profit recipients, and 80 State and Local governmental agencies which receive the majority of their direct Federal funding from EPA. If EPA is your cognizant federal agency, you must submit your indirect cost (IDC) rate proposal to EPA for approval unless you plan to use the de minimis rate. Recipients without a Federally approved rate are eligible to use the de minimis rate instead of negotiating a rate (2 CFR Part 200.414(f)). The only exception is a State or Local governmental agency that receives more than $35 million in direct Federal funding per fiscal year, because 2 CFR Appendix-VII-to-Part-200 D.1.b. requires them to negotiate a rate with their cognizant Federal agency. Indirect rate proposals are due annually and must be submitted within six months following your fiscal year end. Please be advised that EPA does not solicit proposals, and we review proposals in the order in which we receive them.

For further information, recipients are directed to visit the Indirect Cost Rate Proposal Information webpage, which contains instructions on how to submit a proposal to EPA.

How to Prepare an Indirect Cost Rate Proposal for a Non-Profit Organization:

Non-profit recipients should develop and submit their indirect cost rate proposal (IDC) in accordance with the How to Prepare an Indirect Cost Rate Proposal for a Non-Profit Organization webpage.

MTDC Base Tool:

EPA has provided a Modified Total Direct Cost (MTDC) Base Tool which breaks down cost categories and their allowability. Topics within this tool include but are not limited to supplies, travel, fringe benefits, equipment, and construction.

To access this tool, recipients can visit the Modified Total Direct Cost (MTDC) Base Tool link that will open a PDF version of the tool.