Let’s Talk About What NSF Really Means by Indirect Costs
Whether you’re a research institution, a startup, or a nonprofit eyeing National Science Foundation (NSF) funding, one thing is certain: you’ll encounter the question of indirect costs. If you’ve ever wondered how to account for admin overhead, facilities, or IT support in your NSF grant budget, you’re not alone.
And here’s the thing: getting this wrong could mean leaving money on the table—or worse, triggering compliance issues down the line.
Your TL;DR
The NSF has a strict policy about indirect cost rates (a.k.a. F&A or overhead rates). If your organization doesn’t have a federally negotiated rate, you can’t just make one up. Instead, you’re limited to a 10% de minimis rate unless you’ve gone through the formal negotiation process with a cognizant federal agency. Understanding this policy helps ensure compliance and optimizes your funding potential. Learn More about what took place on June 20, 2025, where the U.S. District Court for the District of Massachusetts, in No. 1:25-cv-11231-IT, vacated NSF’s 15% Indirect Cost Rate policy (NSF 25-034). https://www.nsf.gov/policies/document/indirect-cost-rate
Why Indirect Costs Matter
Every federally funded project incurs both direct and indirect costs. While direct costs are easy to track—like salaries and lab equipment—indirect costs cover crucial behind-the-scenes expenses, like HR, utilities, or data security infrastructure.
The NSF wants transparency and fairness. Their policy ensures grantees are reimbursed appropriately but also ensures federal funds are used responsibly.
The 10% Trap
Many organizations assume they can just plug in a 30% overhead rate into their NSF proposal budget. Not so fast. The NSF clearly states: if your organization does not have a current federally negotiated indirect cost rate agreement (NICRA), you must use the 10% de minimis rate based on modified total direct costs (MTDC). No exceptions.
Maximize Funding Without Losing Compliance
No one wants to under-recover indirect costs. Likewise, no one wants an NSF audit. By aligning your budget with NSF’s official indirect cost rate policy, you protect your funding and stay compliant. And if you’re serious about recovering more than 10%, it’s time to explore a formal NICRA process.
What Happens if You Ignore the Rules?
Use an unapproved rate? Your budget could be flagged or rejected. Worse, if you receive funding and misapply your indirect costs, you risk audit findings, reputational damage, and possible clawbacks of awarded funds.
This isn’t just a budgeting issue—it’s a risk management issue.
Understand and Align
✅ Have a NICRA? Great—submit it with your proposal and apply your approved rate.
✅ Don’t have one? Use the 10% de minimis rate—applied only to MTDC (i.e., excluding things like equipment, tuition, and subawards over $25,000).
✅ Not sure what MTDC includes? The NSF policy document breaks it down clearly.
Need more help? Organizations like ours can guide you through budget development, compliance reviews, and even assist with the NICRA process.
Don’t Leave Money—or Your Reputation—on the Table
A solid NSF budget isn’t just about what you spend. It’s about how you account for every dollar.
📅 Need help navigating indirect cost rates or preparing a compliant NSF proposal? Let’s talk. You can always find our consultation scheduling link in the footer.
At EBHC, we’ve helped hundreds of clients craft competitive, compliant federal grant proposals. We understand indirect cost policies inside and out—and we help clients build budgets that support their missions and meet funder expectations
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