Modified Total Direct CostsMTDC
The direct-cost base F&A (indirect) rates are applied to: total direct costs minus equipment, tuition, participant support, and other excluded items.
Your F&A rate only tells you half the story. The other half is the base the rate is applied to, and on most federal research awards that base is modified total direct costs. Two budgets with identical direct costs can recover very different amounts of F&A depending on how much of each budget falls into excluded categories.
What MTDC means
Federal regulations define MTDC as all direct salaries and wages, applicable fringe benefits, materials and supplies, services, travel, and a limited portion of each subaward. Everything else that is a direct cost of the project is still paid by the award, but it is left out of the base, so no F&A is charged on it.
The exclusions exist because some costs would distort the overhead calculation. A $400,000 instrument or a large pass-through subaward does not use proportionally more of the institution's buildings, utilities, or administration, so charging F&A on the full amount would overstate the real indirect cost.
Your institution's Negotiated Indirect Cost Rate Agreement (NICRA) names the base its rates apply to. For most universities and research institutes that base is MTDC.
What is included and excluded
Use this table when you build or check a budget. Anything in the excluded rows is still a direct cost on the award; it simply carries no F&A.
| Cost category | In the MTDC base? | Notes |
|---|---|---|
| Salaries and wages | Included | All direct salary charged to the project, within any salary cap. |
| Fringe benefits | Included | On the salary actually charged. |
| Materials and supplies | Included | Items below the equipment threshold count as supplies. |
| Services | Included | Includes core facility charges and contractor or vendor services. |
| Travel | Included | Project travel for personnel. |
| Subawards | Partly | Only the first $25,000 (NIH) or $50,000 (2024 Uniform Guidance, if your NICRA cites it) of each subaward. |
| Equipment | Excluded | Per-unit cost at or above $5,000 for NIH awards, or $10,000 under the 2024 Uniform Guidance if your NICRA cites it, with a useful life over one year. |
| Capital expenditures | Excluded | Buildings, land, and major improvements. |
| Patient care | Excluded | Charges for patient care in clinical research. |
| Rental costs | Excluded | Typically rent for off-site space. |
| Tuition remission | Excluded | Tuition paid for graduate students on the project. |
| Scholarships and fellowships | Excluded | Student support that is not compensation for work. |
| Participant support costs | Excluded | Stipends, travel, and registration paid to participants or trainees (not employees). |
Other costs can be excluded only when needed to avoid a serious inequity in how indirect costs are distributed, and only with approval from the institution's cognizant agency for indirect costs.
How the subaward rule works
The subaward amount is counted per subaward, not per year and not across all subawards combined. Each subaward contributes up to the threshold to the base over the life of the subaward, regardless of how many budget periods it runs.
For example, under the $25,000 rule a three-year subaward of $40,000 per year adds $25,000 to the base in year one and nothing in years two and three. A second subaward to a different institution gets its own $25,000.
The rule only applies to subawards to subrecipients. Payments to a contractor or vendor are services, and services are fully included in MTDC. That is why the subrecipient-versus-contractor decision changes how much F&A an award recovers.
Which figures apply to your award
The 2024 revision of the Uniform Guidance raised the subaward amount to $50,000 and the equipment threshold to $10,000. NIH adopted those changes for awards made from October 1, 2024, then rescinded them in April 2026 under the FY2026 appropriations act, so NIH awards follow the HHS rules in 45 CFR 75 again.
| Situation | Subaward amount in MTDC | Equipment threshold |
|---|---|---|
| NIH awards (since NOT-OD-26-072, April 2026) | First $25,000 of each subaward | $5,000 |
| Other federal awards under the 2024 Uniform Guidance, where your NICRA cites the new amounts | First $50,000 of each subaward | $10,000 |
| Your NICRA still cites the older amounts | First $25,000 of each subaward | $5,000, or your institution's lower capitalization level |
Your rate agreement and the award's terms control. When the two disagree, ask your sponsored programs office which figure to budget.
Worked example: calculating F&A on MTDC
One budget year with $273,000 in costs that count toward MTDC (salaries $180,000, fringe $54,000, supplies $25,000, travel $8,000, services $6,000), plus $40,000 of equipment, $18,000 of tuition remission, and the first year of a new $100,000 subaward. The F&A rate is 55% of MTDC.
| Line | Using the $25,000 rule | Using the $50,000 rule |
|---|---|---|
| Costs included in full | $273,000 | $273,000 |
| Subaward amount counted | $25,000 | $50,000 |
| MTDC base | $298,000 | $323,000 |
| F&A at 55% | $163,900 | $177,650 |
| Total direct costs | $431,000 | $431,000 |
| Total award for the year | $594,900 | $608,650 |
Same direct costs, a $13,750 difference in F&A. Run your own numbers with the F&A and MTDC calculator, which lets you switch between the two subaward amounts.
MTDC vs. total direct costs (TDC)
Total direct costs are every direct cost on the award, including equipment, tuition, participant support, and the full value of subawards. MTDC is the narrower base after exclusions. Federal research rates are almost always applied to MTDC.
Some sponsors set their own base. Many foundations cap indirect costs at a percentage of total direct costs, and NIH institutional training grants pay a fixed 8% rather than your negotiated rate. Always read the sponsor's policy before you apply your NICRA rate.
Getting the MTDC base wrong is one of the most common budgeting errors. It changes the F&A line, the award total, and what you can actually spend.
Common mistakes
- Charging F&A on equipment because it was budgeted as a supply, or on supplies because they were budgeted as equipment. Classify by per-unit cost and useful life.
- Applying the subaward rule to the whole subaward, or resetting it every year. Only the first $25,000 (or $50,000) of each subaward counts, over its whole life.
- Treating a vendor as a subrecipient, or the reverse. Vendor services are fully in the base; subawards are not.
- Using $50,000 on an NIH award. NIH rescinded the 2024 thresholds in April 2026.
Frequently asked questions
What does MTDC stand for?
Modified total direct costs: the direct cost base, after exclusions, that F&A rates are applied to on most federal research awards.
Is equipment included in MTDC?
No. Equipment, meaning items with a per-unit cost at or above the equipment threshold and a useful life of more than one year, is excluded from MTDC, so no F&A is charged on it.
How much of a subaward is included in MTDC?
The first $25,000 of each subaward for NIH awards and under rate agreements that cite the older amount, or the first $50,000 where the 2024 Uniform Guidance applies and your rate agreement cites it. The amount is counted once per subaward over its life.
Why does NIH still use $25,000?
NIH adopted the 2024 Uniform Guidance thresholds in 2025, then rescinded them in April 2026 (NOT-OD-26-072) under the FY2026 appropriations act. NIH awards follow the HHS rules in 45 CFR 75, which use $25,000.
Are participant support costs included in MTDC?
No. Participant support costs, such as stipends, travel, and registration fees paid to participants or trainees who are not employees, are excluded.
What is the difference between TDC and MTDC?
Total direct costs include every direct cost. MTDC removes equipment, capital expenditures, patient care, rental costs, tuition remission, scholarships and fellowships, participant support, and the portion of each subaward above the threshold.
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