Indirect Cost Rates

For more assistance visit the Federal Funds Office Indirect Cost Rate Group Landing Page.

The Texas Health and Human Services requires all awards of state and federal grants from the Department of State Health Services or Health and Human Services Commission to have an established and approved rate in place to recover indirect costs. Charging indirect costs without an approved indirect cost rate may result in cost disallowance and the grantee may be required to reimburse the funding agency.

Direct versus Indirect Costs

Direct costs are expenses that can easily be traced back to a specific grant, contract, activity, project or program.

Indirect costs are expenses that are necessary for general and administrative operation of the organization and are not easily traced back to a specific grant, contract, activity or project function. Indirect costs are commonly referred to as overhead or facilities and administration costs. These costs are considered common or shared and are incurred in support of more than one cost objective. Additionally, certain expenses may be partially direct and partially indirect. For example, rent is an expense that could have a direct component and an indirect component. The direct component would be the cost of the space that a program is using. The indirect component would be the cost of the space that the entire organization benefits from, such as common areas.

All costs that are not classified as direct are indirect costs.

Common Examples of Direct Versus Indirect Costs

Direct Costs

Equipment for use on grant or contract
Direct Salaries and Wages
Subawards/Subcontracts
Material and supplies for use on grant or contract
Travel of direct labor employees

Indirect Cost

Accounting Department
IT Department
Executive Staff

Indirect Cost Options

The HHS Indirect Cost Rate Group in the Federal Funds Office is responsible for reviewing, negotiating, and approving requests for indirect cost rates.

Grantees must select an indirect cost recovery option.

Decline Indirect Costs.
Use the de minimis indirect cost rate.
Provide a copy of a currently approved federal or state negotiated indirect cost agreement.
Negotiate an indirect cost rate with the HHS Indirect Cost Rate Group.

Submitting a Request

Grantees can complete requests, submit documentation, contact the HHS Indirect Cost Rate Group or get help with indirect cost rates through the Federal Funds Office Indirect Cost Rate Group Landing Page. Entities are contacted within three business days of a request being submitted.

Request Types

The following provides an overview of the type of requests available through the Federal Funds Office Indirect Cost Rate Group Landing Page.

Indirect Cost Rate Questionnaire: Select the method your entity will use to recover indirect costs.
Indirect Cost Rate Proposal: Submit a completed Indirect Cost Rate Proposal Packet.
Technical Assistance: Ask questions or ask for help.
Upload Additional Documents: Submit supporting documentation.
ICR Dispute Form: Ask for a re-evaluation of the indirect cost determination.

Indirect Cost Rate Questionnaire

The Indirect Cost Rate Questionnaire is required to initiate and establish an approved method to recover indirect costs. The questionnaire allows grantees to select an indirect cost rate option.

Decline indirect costs.
Request the de minimis rate.
Submit a federally-approved rate.
Submit an approved rate agreement from another state agency.
Request to negotiate a rate agreement directly with the HHS Indirect Cost Rate Group.

The indirect cost rate questionnaire must be submitted to the HHS Indirect Cost Rate Group through the Federal Funds Office Indirect Cost Rate Group Landing Page. The questionnaire must be completed by the executive director, chief financial officer, county judge, or equivalent.

When a questionnaire is submitted, a unique identification number is provided. The unique number is called a Request ID and is used to track the status of your submission.

Declining Indirect Cost Recovery

Declining an indirect cost rate informs the HHS System that the entity will not request an indirect cost reimbursement for any DSHS or HHSC state awards or federal pass-through awards. If declining indirect cost recovery, the grantee may not use unrecovered indirect costs towards cost sharing or matching requirements.

To decline indirect cost recovery:

Navigate to the Federal Funds Office Indirect Cost Rate Group Landing Page. At the drop-down, select “Indirect Cost Rate Questionnaire”.
Complete all required fields. For the question “If eligible, does the organization wish to request reimbursement for indirect costs?”, select “No”.
Submit.

A letter documenting the choice to decline indirect cost recovery will be sent to the grantee at the email address of the requestor.

De Minimis Indirect Cost Rate

The de minimis indirect cost rate can be 10% or 15% of Modified Total Direct Costs (MTDC) and can be used indefinitely, or until a grantee either declines indirect cost recovery or switches to a negotiated rate. If utilizing the de minimis, the grantee may not use unrecovered indirect costs towards cost sharing or matching requirements.

The recoverable amount of indirect costs using the de minimis rate is calculated by taking the sum of the MTDC and multiplying by the applicable de minimis rate. The applicable de minimis rate and portion of subawards to include in the MTDC calculation is dependent on the award date and fund source.

Guidelines related to the applicable de minimis rate for federal subawards and state awards are summarized below. Note that the allowable de minimis rate for federal subawards is dependent on the date that the federal award was issued to HHSC/DSHS, not the date the subaward was issued to a subrecipient.

De Minimis Indirect Cost Rate Guidelines

For State Awards (Texas Grant Management Standards)

For Award Dates: On or before 9/30/2024

Rate: 10%

Modified Total Direct Costs base includes direct salaries and wages, applicable fringe benefits, materials and supplies, services, and up to the first $25,000 of each subaward (regardless of the period of performance of the subawards under the award).

For Award Dates: On or after 10/01/2024

Rate: 15%

Modified Total Direct Costs base includes direct salaries and wages, applicable fringe benefits, materials and supplies, services, and up to the first $50,000 of each subaward (regardless of the period of performance of the subawards under the award).

For Federal Subawards (Uniform Grant Guidance)

For Award Dates to HHSC or DSHS: On or before 9/30/2024 (refer to federal Notice of Award)

Rate: 10%

For Award Dates to HHSC or DSHS: On or after 10/01/2024 (refer to federal Notice of Award)

Rate: 15%

For Awards with Braided or Blended Funding

Awards with combined state and federal funds must use the Award date from the federal Notice of Award (NOA) issued to the prime awardee (HHSC or DSHS) to determine which de minimis rate is applicable. If there is more than one federal Notice of Award, use the date from the earliest federal NOA. For example, if there is one state award and two federal NOAs being used for funding, use the earliest date out of the two federal NOAs.

If you have questions regarding the date of the award issued to HHSC/DSHS from the federal awarding agency, please contact your contract manager.

The MTDC base is not comprised of all direct costs. The following items are excluded when calculating the MTDC base.

Equipment and capital expenditures
Rental costs
Participant support costs
Amount of each subaward over $25,000/$50,000, as applicable
Any other distorting items

Requesting the De Minimis

This option is only available for entities that don’t have a current federal or state-negotiated indirect cost rate agreement.

To request the de minimis indirect cost rate:

Navigate to the Federal Funds Office Indirect Cost Rate Group Landing Page. At the drop-down, select “Indirect Cost Rate Questionnaire”.
Complete all required fields. For the question “If eligible, does the organization wish to request reimbursement for indirect costs?”, select “Yes”. For the question “If eligible, would the organization like to request the de minimis indirect cost rate?”, select “Yes”.
Submit.

Once the request is received, the HHS Indirect Cost Rate Group may contact the requestor for additional information. The normal turnaround time for de minimis approval and issuance of a de minimis acknowledgement letter is one week or less.

Federal or State Approved Rate

Federal or state approved rates will be honored by the HHS Indirect Cost Rate Group. Additional documentation may be requested to justify the submitted indirect cost rate.

Entities must provide the HHS Indirect Cost Rate Group with a copy of the current approved negotiated indirect cost rate agreement. The agreement must be provided at submission of the request.

When the federal or state approved indirect cost rate is accepted by the HHS Indirect Cost Rate Group, an acknowledgement letter will be sent to the grantee to confirm acceptance and use of this rate.

Once a rate is acknowledged it is effective until the entity requests a new rate or notifies HHS of changes to the existing rate. When there are changes or updates to your federal or other state agency approved rate(s), you must notify the HHS Indirect Cost Rate Group through the Federal Funds Office Indirect Cost Rate Group Landing Page within 30 days of the change.

If your federal or state agency has not approved a new rate before it expires, grantees should submit a technical assistance request through the Federal Funds Office Indirect Cost Rate Group Landing Page to advise that an updated agreement has not been received.

Negotiating an Indirect Cost Rate

Negotiating a rate requires an indirect cost rate proposal and supporting documentation be submitted to the HHS Indirect Cost Rate Group. Entities must complete the HHS Indirect Cost Rate Group templates when requesting a negotiated rate. There are two ways to obtain an indirect cost rate proposal packet:

Email the HHS Indirect Cost Rate Group, or
Submit a Technical Assistance request via the Federal Funds Office Indirect Cost Rate Group Landing Page.

If the entity wishes to use unrecovered indirect costs as a match or for cost sharing, a negotiated rate must be obtained. The indirect cost amount is used to determine how much of the indirect cost the entity can use as a match or for cost sharing. Prior approval from HHS is required.

The indirect cost rate proposal must be submitted to the HHS Indirect Cost Rate Group through the Federal Funds Office Indirect Cost Rate Group Landing Page.

An indirect cost rate agreement is issued once the indirect cost rate is approved. Indirect cost rate proposals must be completed annually, and the indirect cost rate agreement provides timelines for submitting the next proposal.

Rate Types

HHS offers various rate types to help recover indirect costs. These options are available for grantees requesting a negotiated rate. Restrictions on indirect cost rates if any may be found in the notice of funding opportunity for each state or federal grant.

Provisional Rates

Provisional rates are the primary rate type issued by the HHS Indirect Cost Rate Group. Provisional rates are temporary estimates of the indirect cost rate and are used for a specified period. Provisional rates are required to be trued-up annually to determine final actual amounts. Truing up a provisional rate will result in a final rate being established after the close of the fiscal year.

Final Rate

A final rate is established once actual costs for the fiscal year are known. Final rates are issued after the true-up process is conducted at the end of the provisional rate period. A final rate cannot be adjusted.

Final rates are used to adjust indirect costs that were claimed and might include a refund or payment if the final rate is less or greater than the provisional rate that was temporarily used. Grantees must work with their contract managers regarding remittance or billing adjustments for any over or under-recoveries.

Fixed Carry-forward

A fixed carry-forward rate is an indirect cost rate which has the same characteristics as a predetermined rate, except that the difference between the estimated costs and the actual, allowable costs of the period covered by the rate is carried forward as an adjustment to the rate computation of a subsequent period. When the actual costs for this period are determined, an adjustment will be made to a rate of a future year(s) to compensate for the difference between the costs used to establish the fixed rate and actual costs.

Predetermined Rate

A predetermined rate is based on estimated costs for a current or future specified period. A predetermined rate is based on the entity’s actual indirect costs. A predetermined rate can only be issued if there is a high level of assurance that this rate will not be exceeded.

The predetermined rate cannot be adjusted except under unusual circumstances. If the entity’s total expenditures increase or decrease by more than 25 percent within a 90-day period of the predetermined rate, the entity must submit a rate proposal. The rate proposal is based on the new expenditure data resulting from the increase or decrease.

Contact

For more information email the HHS Indirect Cost Rate Group or visit the Federal Funds Office Indirect Cost Rate Group Landing Page.