If you have ever looked at your federal grant budget and wondered why your indirect costs do not match the total award amount, you’re not alone. That question almost always leads back to Modified Total Direct Costs, or MTDC.
MTDC is the base used to calculate indirect costs for many federal awards. Instead of applying your indirect cost rate to every dollar in your budget, the rate is applied to a specific portion of your direct costs. That means your total award is not the number driving your indirect cost recovery. Your MTDC base is.
Once you understand that shift, things start to click. Your indirect costs are not lower because of an error; instead, they’re lower because the base they are applied to is smaller by design.
MTDC focuses on the core costs that support the day to day work of a program. This usually includes salaries, fringe benefits, travel, supplies, and services. These are the costs most directly tied to carrying out the work of the award.
At the same time, certain costs are intentionally excluded. Equipment, capital expenditures, participant support costs, and tuition remission are not part of the MTDC base. These are treated differently because they are not considered part of the ongoing operational structure that indirect costs support.
Subawards are where things tend to get confusing. Only the first $50,000 of each subaward is included in MTDC. Anything above that amount is excluded. If you’re working with multiple subrecipients, that one detail can significantly change your calculation.
MTDC issues usually are not about complicated math. They come from small missteps that build over time. A common example is applying the indirect cost rate to total project costs instead of the MTDC base. Another is forgetting to exclude the portion of each subaward over $50,000. Equipment is also frequently misclassified, which quietly throws off the calculation.
The easiest way to stay on track is to walk through your budget early.
Start by identifying which costs belong in MTDC and which do not. Then take a closer look at subawards and confirm only the allowable portion is included.
From there, apply your indirect cost rate and compare it to what you are actually charging.If something feels off, it usually is worth a second look.
Catching it now is a lot easier than trying to explain it later during reporting or closeout.
