What is the Modified Total Direct Cost (MTDC) Base?
In grant accounting, direct costs are expenses specifically tied to a project, such as researcher salaries and lab supplies. Indirect costs, often called Facilities and Administrative (F&A) costs, are overhead expenses that support the organization as a whole, like rent, utilities, and administrative staff.
The MTDC is a subset of your total direct costs. Federal guidelines dictate that overhead rates should not be applied to certain large or passive expenditures. By subtracting these excluded items from your total direct costs, you arrive at the MTDC base.
2 CFR 200 Compliance and Exclusions
The rules defining MTDC are established by the U.S. Office of Management and Budget (OMB) under the Uniform Guidance (2 CFR 200.1). This regulation applies to all organizations, universities, and non-profits receiving federal awards.
Under 2 CFR 200, several specific costs must be excluded from the MTDC base. If an organization applies its indirect cost rate to these excluded items, it risks auditing findings and being forced to repay federal funds.
- Equipment and capital expenditures (typically items over $5,000).
- Charges for patient care.
- Rental costs of off-site facilities.
- Tuition remission, scholarships, and fellowships.
- The portion of each subaward or subcontract that exceeds $25,000.
How to Calculate the MTDC Base
Calculating the MTDC requires summing your total project direct costs and subtracting the federally mandated exclusions. Once the MTDC is isolated, you multiply it by your organization's approved indirect cost rate.
The Formula: MTDC = Total Direct Costs - (Equipment + Rent + Scholarships + Subaward amounts over $25k). Indirect Costs = MTDC x Negotiated F&A Rate.
Worked Example: Your total direct costs are $200,000. This includes $30,000 for a new lab centrifuge (equipment) and a $40,000 subaward to a partner university. First, identify exclusions: the $30,000 equipment is fully excluded. For the subaward, the first $25,000 is included in MTDC, but the remaining $15,000 is excluded. Total exclusions = $30,000 + $15,000 = $45,000. Your MTDC base is $200,000 - $45,000 = $155,000. If your F&A rate is 40%, your indirect costs are $155,000 x 0.40 = $62,000.
The Importance of the Subaward Rule
The $25,000 subaward rule is a common source of errors in grant budgeting. The rule states that you can only charge indirect costs on the first $25,000 of each subaward, regardless of the subaward's total duration or whether the grant spans multiple years.
This rule prevents prime recipients from collecting excessive overhead on funds that are simply passing through to another institution doing the actual work.
Frequently asked questions
What is the difference between TDC and MTDC?
Total Direct Costs (TDC) includes every direct expense charged to a project. Modified Total Direct Costs (MTDC) is TDC minus specific statutory exclusions like equipment and large subawards.
Is the $25,000 subaward limit applied per year or per project?
The $25,000 limit is applied once per subaward over the entire lifecycle of the grant project, not per year.
What defines 'equipment' under 2 CFR 200?
Equipment is generally defined as tangible personal property having a useful life of more than one year and a per-unit acquisition cost of $5,000 or more.
Can I use MTDC if I don't have a negotiated indirect rate?
Yes, organizations without a negotiated rate can elect to use the 10% de minimis indirect cost rate, which is also applied against the MTDC base.