What counts as modified total direct costs under 2 CFR 200?

Source last checked: 1 September 2026.

Modified total direct costs (MTDC) are the slice of direct costs that an indirect cost rate is applied to. Under 2 CFR § 200.1, MTDC covers direct salaries and wages, fringe benefits, materials and supplies, services, travel, and the first $50,000 of each subaward. Equipment, capital expenditures, patient care, rent, tuition remission, scholarships and participant support costs are all excluded.

What 2 CFR 200 puts inside modified total direct costs

These categories, and nothing else: direct salaries and wages, applicable fringe benefits, materials and supplies, services, travel, and up to the first $50,000 of each subaward. The definition sits in the definitions section of the regulation, not in the cost principles, which is why it is easy to miss when you are reading about indirect cost rates (2 CFR § 200.1, page 13).

Modified Total Direct Cost (MTDC) means 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). MTDC 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.

Other items may only be excluded when necessary to avoid a serious inequity in the distribution of indirect costs and with the approval of the cognizant agency for indirect costs.
2 CFR § 200.1, page 13

The second paragraph is the part practitioners skip. The exclusion list is not a menu you may extend at will: anything beyond it needs the cognizant agency for indirect costs to agree, and the test is a serious inequity in how indirect costs fall, not convenience.

What the base excludes, and where each exclusion is defined

The exclusions are listed in the same sentence. The trap is that several of them are themselves defined terms elsewhere in the regulation, so whether a line of your budget is excluded is not a judgement call.

Excluded from MTDC	Defined at	What the definition turns on
Equipment	2 CFR § 200.1, page 9	Tangible personal property with a useful life over one year and a per-unit acquisition cost at or above the lesser of your own capitalisation level or $10,000. Below that line it is a supply, and supplies stay in the base.
Capital expenditures	2 CFR § 200.1, page 7	Expenditure to acquire capital assets, or additions and alterations that materially increase an asset's value or useful life. Ordinary repairs and maintenance are not capital expenditures.
Participant support costs	2 CFR § 200.1, page 14	Direct costs supporting participants, such as stipends, subsistence and travel allowances, registration fees and per diem paid to or for participants. Staff and consultants delivering the activity are not participants.
Portion of each subaward over $50,000	2 CFR § 200.1, page 17	A subaward is an award to a subrecipient to carry out part of the federal award. Payments to a contractor, beneficiary or participant are not subawards.
Charges for patient care, rental costs, tuition remission, scholarships and fellowships	2 CFR § 200.1, page 13	Named directly in the MTDC definition with no separate threshold.

One of these turns on a number you set yourself. Equipment turns on the lesser of your own capitalisation level and $10,000, so an organisation that capitalises at $2,500 pushes more of its budget out of the base than one that capitalises at $10,000 — with the same purchases. Supplies, by contrast, are everything tangible that is not equipment (2 CFR § 200.1, page 17), and they stay in.

Why the base matters: 15 percent of MTDC, not of your budget

Because the de minimis rate is expressed against MTDC, not against total direct costs. An applicant with no negotiated rate may elect up to 15 percent, and the multiplier is only as large as the base you are entitled to use (2 CFR § 200.414(f), page 70).

De minimis rate. Recipients and subrecipients that do not have a current Federal negotiated indirect cost rate (including provisional rate) may elect to charge a de minimis rate of up to 15 percent of modified total direct costs (MTDC). The recipient or subrecipient is authorized to determine the appropriate rate up to this limit.
2 CFR § 200.414(f), page 70

Three further points from the same paragraph are worth holding on to: the rate needs no documentation to justify its use and may be used indefinitely; once elected it must be used for all federal awards until the recipient chooses to move to a negotiated rate; and costs must be charged consistently as either direct or indirect, never both. A pass-through entity may not force a subrecipient onto the de minimis rate when the subrecipient has a rate negotiated with the federal government (2 CFR § 200.332, page 57), and the rate elected has to be disclosed — the federal award itself records whether the de minimis rate is charged (2 CFR § 200.211(b)(16), page 29), and the schedule of expenditures of federal awards carries a note saying whether the auditee elected it (2 CFR § 200.510(b)(6), page 109).

A worked example: the same budget, two bases

The gap is arithmetic, not interpretation. The figures below are invented for illustration; the inclusion and exclusion rules applied to them are the ones cited above.

Budget line	Amount	In MTDC?
Direct salaries and wages	$180,000	In full
Applicable fringe benefits	$45,000	In full
Materials and supplies	$20,000	In full
Contracted services	$15,000	In full
Travel	$10,000	In full
Subaward A (university partner)	$70,000	$50,000 in, $20,000 out
Subaward B (community organisation)	$30,000	In full
One instrument at $18,000 per unit	$18,000	Out — equipment
Stipends paid to workshop attendees	$12,000	Out — participant support
Total direct costs	$400,000
Modified total direct costs	$350,000

Fifteen percent of $350,000 is $52,500. Fifteen percent of the $400,000 headline is $60,000. The $7,500 difference is not a rounding question; it is a charge the regulation does not authorise, and it is the kind of thing a single audit is well placed to find, because the elected rate is recorded both in the award and in the schedule of expenditures of federal awards.

Note what the equipment line does. Had the same $18,000 been spent on nine instruments at $2,000 each, and had the organisation capitalised at $10,000, every one of them would have been a supply and the whole $18,000 would have stayed in the base. The exclusion follows the per-unit acquisition cost, not the total spend on a category.

How the $50,000 subaward line actually behaves

It is a cap per subaward and it does not reset. That produces two results people find surprising.

Splitting work across more subawards enlarges the base. One subaward of $100,000 contributes $50,000. Two subawards of $50,000 contribute $100,000. The regulation caps each subaward, not the aggregate (2 CFR § 200.1, page 13).
A long subaward does not earn a new allowance each year. The definition says “regardless of the period of performance of the subawards under the award”, so a four-year subaward of $200,000 still contributes $50,000, once.

This is a place to be careful about the reason for a budget structure. The rule creates an arithmetic incentive to divide work, and the cost principles elsewhere in the regulation expect costs to be treated consistently for the same purpose in like circumstances (2 CFR §§ 200.412 and 200.413, page 68). Splitting a single body of work between two subrecipients to enlarge an indirect cost base is not what that consistency requirement contemplates.

Two regimes: when MTDC is the base, and when it is only one option

MTDC is the mandatory base in one appendix and one of several permitted bases in the others. Reading the wrong appendix is the most common way to get this wrong, because the appendices do not use identical language for the $50,000 line.

Who you are	What the appendix says about the base	Source
Institution of higher education	Indirect costs must be distributed on the basis of MTDC as defined in § 200.1. Under the simplified procedure, available where the direct cost of covered work does not exceed $10 million in a fiscal year, the institution may use either salaries and wages or MTDC as the distribution basis.	appendix III, section C.2, page 134; appendix III, section D.1, page 136
Nonprofit organisation	The base may be total direct costs excluding capital expenditures and other distorting items, “such as subawards for $50,000 or more”, or direct salaries and wages, or another base giving an equitable distribution; participant support costs must be excluded in any case.	appendix IV, section B.2, page 139
State or local government department, or Indian Tribe	The base may be total direct costs excluding capital expenditures and other distorting items “such as pass-through funds, subcontracts in excess of $50,000, and participant support costs”, or direct salaries and wages, or another equitable base.	appendix VII, section D.2, page 149

Look closely at the three phrasings of the same threshold. Appendix III adopts the § 200.1 formulation, the first $50,000 of each subaward stays in. Appendix IV describes the distorting item as a subaward “for $50,000 or more”. The appendix for governmental units writes “in excess of $50,000”. These are descriptions of what may be treated as a distorting item in a negotiated proposal, not three competing definitions of MTDC — the definition in § 200.1 does not move. But the wording is why a negotiated rate agreement can describe its base differently from the de minimis rate, and why you cannot infer your base from somebody else's rate agreement.

Indirect (F&A) costs must be distributed to applicable Federal awards and other benefitting activities within each major function (see section A.1) on the basis of modified total direct costs (MTDC), consisting of all salaries and wages, fringe benefits, materials and supplies, services, travel, and up to the first $50,000 of each subaward (regardless of the period covered by the subaward). MTDC is defined in § 200.1.
2 CFR part 200, appendix III, section C.2, page 134

Two other appendix III figures bear on the same base and are easy to mistake for rate caps in general: administrative costs charged to federal awards are limited to 26 percent of MTDC for the four named administration categories taken together, and an institution may instead elect a fixed allowance for the administration portion of 24 percent of MTDC or 95 percent of its most recently negotiated administration rate, whichever is less (appendix III, sections C.8 and C.9, page 135). Neither figure is the de minimis rate, and neither applies outside appendix III.

What this guide does not cover

MTDC is a rule of the federal financial assistance system, and it stops at that boundary. Three limits are worth stating plainly, because each one is a place where applying this page would give you the wrong regulation.

Federal contracts are outside it. The de minimis rate must not be applied to cost reimbursement contracts issued directly by the federal government under the FAR (2 CFR § 200.414(f), page 70). A contract priced under the federal acquisition cost principles does not have an MTDC base at all.
It does not tell you whether a cost is allowable. MTDC is a question about the base an indirect cost rate is applied to. Whether a particular cost may be charged to the award at all is decided by the cost principles in subpart E, and an unallowable cost can still sit in the base for rate-setting purposes in the circumstances set out in § 200.413(e) (2 CFR § 200.413(e), page 68).
It is not the same question as your rate. This page is about the base. How a rate is negotiated, extended for up to four years, or accepted by other agencies is a separate matter under § 200.414 (2 CFR § 200.414, page 69).

Where the boundary with our other 2 CFR 200 pages runs: the division is by section of the regulation, not by topic. This page carries the § 200.1 definition of MTDC and what the base excludes. The 2 CFR 200 overview covers what the part as a whole governs and who it binds, and appendix II contract clauses covers the clauses a recipient must put into contracts it awards under a federal award. If your question is about a clause in a procurement contract rather than about a cost base, appendix II is the page you want.

Frequently asked questions

Is MTDC the same as total direct costs?

No. MTDC is total direct costs minus a fixed list of exclusions set out in 2 CFR § 200.1: equipment, capital expenditures, charges for patient care, rental costs, tuition remission, scholarships and fellowships, participant support costs, and the part of each subaward above $50,000. On a budget that carries equipment and a large subaward, the two figures are far apart, and applying a rate to the wrong one overstates recovery.

Does the $50,000 subaward cap apply per subaward or to all subawards together?

Per subaward. § 200.1 reads “up to the first $50,000 of each subaward”, so two subawards of $70,000 and $30,000 put $50,000 and $30,000 into the base, while a single subaward of $100,000 puts in only $50,000. The same paragraph adds “regardless of the period of performance of the subawards under the award”, so a multi-year subaward does not get a fresh $50,000 for each year.

Can I exclude something from MTDC that is not on the list in § 200.1?

Only with approval. § 200.1 says other items may be excluded only when that is necessary to avoid a serious inequity in the distribution of indirect costs, and only with the approval of the cognizant agency for indirect costs. There is no self-service exclusion.

What rate do I apply to MTDC if I have never negotiated an indirect cost rate?

Recipients and subrecipients without a current federally negotiated rate, including a provisional rate, may elect a de minimis rate of up to 15 percent of MTDC under § 200.414(f). You choose the figure up to that limit, it needs no documentation to justify it, and it may be used indefinitely. Once elected, it applies to all of your federal awards until you move to a negotiated rate.

Does the de minimis rate work on a federal contract as well as a grant?

No. § 200.414(f) states that the de minimis rate must not be applied to cost reimbursement contracts issued directly by the federal government under the FAR. Modified total direct costs is a concept of the federal financial assistance rules, not of federal procurement, and a contract priced under FAR part 31 does not use it.

Is my institution's base MTDC, or salaries and wages?

It depends on which appendix governs your proposal. Appendix III tells institutions of higher education to distribute indirect costs on the basis of MTDC as defined in § 200.1, and allows a salaries-and-wages base under the simplified procedure where the direct cost of covered work does not exceed $10 million in a fiscal year. Appendices IV and VII give nonprofit organisations and governmental departments a choice of total direct costs less distorting items, direct salaries and wages, or another equitable base. The de minimis rate in § 200.414(f) is 15 percent of MTDC for everyone who elects it.

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Source: Code of Federal Regulations, title 2, volume 1, part 200 — Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, 1 January 2025 edition, as published by the US Government Publishing Office: CFR-2025-title2-vol1-part200.pdf. Page numbers in the citations above are pages of that PDF, and each link opens at the page cited. Source last checked on 1 September 2026. This guide describes 2 CFR Part 200 as revised in 2024 (89 FR 30046, effective 1 October 2024), which is the text in force today. OMB published a proposed rewrite on 29 May 2026 (91 FR 32198, docket OMB-2026-0034); the comment period closed on 13 July 2026. OMB signalled a target effective date of 1 October 2026, but as of 28 September 2026 no final rule had been published in the Federal Register, and the proposal has no legal effect until it is finalised. Checked against the source on 28 September 2026.

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