What you will practice
- Separate total direct costs from the base used to calculate F&A.
- Apply a subaward threshold using amounts already included in earlier periods.
- Explain how a change in the applicable base affects the same budget.
- Prepare a calculation another administrator can reproduce.
An educational case using one assumed negotiated F&A rate of 55%. The main exercise assumes an award and rate agreement that use the revised $50,000 subaward threshold. A separate comparison assumes NIH FY 2026 indirect-cost rules and the $25,000 threshold. These are alternative cases, not instructions to change an existing award. Confirm the applicable award terms, agency guidance, rate agreement, cost classifications, and period before using a calculation at work. No de minimis, split-rate, restricted-rate, or retroactive adjustment calculations are covered.
Start with the agreement, then the arithmetic
You receive a budget spreadsheet with a 55% F&A rate already entered. Before approving the total, ask what the percentage multiplies. A rate and its distribution base work together. Applying the right percentage to the wrong base still produces the wrong result.
For this fictional case, the sponsored projects office has confirmed a single 55% negotiated rate, the relevant activity and location, and the applicable period. All listed direct costs are assumed allowable and properly classified. The exercise isolates the base calculation; it does not determine whether a purchase is allowable or approve a change to an award.
At work, retain the agreement and applicable award terms with the calculation. Record the base, rate, effective period, and any award-specific restriction. NIH Grants Policy Statement section 7.4 explains that reimbursement can depend on recipient type, rate type, and award class. A percentage copied from another project is incomplete evidence.
Write down the four facts you would request before reusing a colleague's F&A spreadsheet: award basis, applicable rate, relevant period, and documented cost classifications.
Keep direct costs and MTDC separate
Under the revised Uniform Guidance MTDC definition, salaries, fringe, supplies, services, and travel generally enter the base. Equipment, capital expenditures, patient care, rental costs, tuition remission, scholarships and fellowships, and participant support are excluded. Each subaward enters only up to its applicable threshold. Additional exclusions require the cognizant agency's approval to address serious inequity.
An exclusion from MTDC does not remove the cost from the direct-cost budget. Here, the $40,000 equipment purchase remains a direct cost, although it contributes zero to MTDC. The same treatment applies to the assumed tuition remission and participant support costs. Their classification has been supplied as a case fact; do not reclassify a real invoice from its label alone.
For each worksheet row, identify two separate amounts: current direct cost and the amount entering MTDC. Explain every difference.
Bring the subaward history forward
The general $50,000 threshold applies to each subaward across its period of performance. It does not restart every budget year. Track the portion already included in the prime recipient's base separately from this period's amount. Do not combine unrelated subawards into one shared allowance.
For this calculation: remaining capacity = the larger of zero or threshold minus prior amount included. Current inclusion = the smaller of current subaward costs or remaining capacity. Subaward A has $60,000 this period and $25,000 already included earlier. With a $50,000 threshold, only $25,000 enters this period's base; $35,000 is excluded.
The historical $25,000 is not a new direct cost in this period. Adding it again would overstate the budget. A short reconciliation by subaward makes that error visible before the F&A calculation reaches a financial report.
Calculate Subaward B's inclusion using $30,000 this period and $10,000 previously included. Show the remaining capacity before choosing the current inclusion.
Check the agency rule before choosing $50,000
NIH's April 20, 2026 notice, NOT-OD-26-072, says the indirect-cost provisions of 45 CFR 75 continue to apply under the FY 2026 appropriations statute. It rescinds NIH's previously announced adoption of the revised MTDC threshold and de minimis provision. The NIH MTDC definition uses $25,000 per subaward. This does not make every NIH cost rule an older-rule calculation.
For the comparison, assume the same fictional budget and 55% negotiated rate, but an applicable $25,000 base. Subaward A has already exhausted that threshold and contributes zero. Subaward B has $15,000 remaining, so it contributes $15,000. Historical amounts remain historical; this exercise does not direct a reversal of earlier charges.
A calculator can compare these two assumptions. It cannot decide which agreement or policy governs your award. If documents disagree, preserve the discrepancy and seek clarification through your institution and the appropriate sponsor contact before finalizing the calculation.
Leave a calculation someone else can reproduce
Use the worksheet to reconcile current direct costs, exclusions, and MTDC. Multiply the resulting base by 0.55, then add F&A to current direct costs. Label that last figure 'direct costs plus F&A'; this case has no separately modeled cost sharing or other institutional contribution.
Before handing it off, compare the worksheet against the budget and subaward history. Retain the source documents, assumptions, preparer and review dates, and the version of the calculation. These are practical review aids. A clean result should explain both the arithmetic and why this particular base was selected.
Write a two-sentence handoff explaining the selected threshold and why the equipment purchase stays in direct costs but not in MTDC.
A two-subaward budget
Complete both MTDC columns. Use $50,000 per subaward for the main case and $25,000 for the NIH FY 2026 comparison.
Prior amounts are portions already included in the prime's MTDC base before this period. They are not added to current direct costs.
Total current direct costs and each base. Apply the assumed negotiated rate of 55%, then calculate direct costs plus F&A.
List the award documents you would need before applying either result to a live project.
| Cost item | Current direct cost ($) | Prior subaward amount included ($) | General MTDC ($) | NIH FY 2026 MTDC ($) | Reason |
|---|---|---|---|---|---|
| Salaries | 160000 | – | – | – | – |
| Fringe benefits | 48000 | – | – | – | – |
| Supplies | 18000 | – | – | – | – |
| Services | 12000 | – | – | – | – |
| Travel | 7000 | – | – | – | – |
| Equipment | 40000 | – | – | – | Assumed properly classified equipment |
| Tuition remission | 15000 | – | – | – | – |
| Participant support | 5000 | – | – | – | – |
| Subaward A | 60000 | 25000 | – | – | – |
| Subaward B | 30000 | 10000 | – | – | – |
| Totals | – | – | – | – | – |
| F&A at assumed 55% | – | – | – | – | – |
| Direct costs plus F&A | – | – | – | – | – |
Compare your approach with the worked answer
Current direct costs total $395,000. Salaries, fringe, supplies, services, and travel contribute $245,000 to either base. Equipment, tuition remission, and participant support total $60,000 and contribute zero to either base.
General case: A contributes min($60,000, $50,000 - $25,000) = $25,000. B contributes min($30,000, $50,000 - $10,000) = $30,000. MTDC = $245,000 + $25,000 + $30,000 = $300,000. Exclusions total $95,000. F&A = $300,000 × 55% = $165,000. Direct costs plus F&A = $560,000.
NIH comparison: A contributes zero because its prior included amount has reached $25,000. B contributes min($30,000, $25,000 - $10,000) = $15,000. MTDC = $260,000. Exclusions total $135,000. F&A = $143,000. Direct costs plus F&A = $538,000.
The $40,000 base difference produces a $22,000 F&A difference at 55%. That comparison describes two specified cases; it does not authorize selecting the more favorable total.
Check your understanding
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Sources and applicability
Check the terms, policy dates and agreements that apply to your award. These fictional practice cases do not authorize an institutional transaction.
- OMB 2024 final guidance: 2 CFR 200.1 MTDC definition and subaward threshold discussion
- NIH NOT-OD-26-072: FY 2026 indirect-cost implementation update, April 20, 2026
- NIH Grants Policy Statement 1.2: Definition of Terms, Modified Total Direct Cost
- NIH Grants Policy Statement 7.4: Reimbursement of Indirect Costs