Nonprofit Program Budget: Direct, Shared and Indirect Costs, with an Example

A nonprofit program budget shows what one program costs and how it will be paid for: its direct costs, a fair share of the organization’s shared costs, an indirect cost rate, and the revenue and in-kind support behind it. Funders ask for one with almost every project grant. The rules that matter most changed recently: federal awards now allow a de minimis indirect rate of up to 15%, and several large foundations pay 25% to 30%. This page walks through building one, with a worked example, from the federal regulations, the IRS’s Form 990 instructions and foundations’ own policies, read on 10 November 2026.

Direct costs, shared costs and indirect costs

Every program budget sorts costs into three kinds. Direct costs belong to the program alone. The federal cost principles, 2 CFR 200.413, define them as “those costs that can be identified specifically with a particular final cost objective”: the program’s staff, materials and travel. Shared costs, such as rent or a phone system, serve several programs and are split among them; 2 CFR 200.405 says costs shared across projects “must be allocated to the projects based on the proportional benefit”, for example by floor space or staff time. Indirect costs run the whole organization, such as finance, HR and the executive director, and are usually covered by a rate added on top.

Administrative salaries normally sit in the indirect pool. Section 200.413 says “Administrative and clerical staff salaries should normally be treated as indirect costs”, and charging them directly to a federal award is allowed only when the work is integral to the project and the people are named. Whatever you choose, be consistent: never charge the same cost both directly and through the indirect rate.

A worked example

Our example: an after-school tutoring program run by a small charity. The program’s own staff, materials, travel and evaluator are direct. The rent line is a shared cost, allocated to the program by the share of the building it uses. The categories on the right are the federal object classes from the SF-424A budget form: personnel, fringe benefits, travel, equipment, supplies, contractual, construction, other, and indirect charges. The SF-424A instructions put individual consultants under other and contracts under contractual, and local travel under other.

The indirect rate, and why funders differ

Our arithmetic on the example. The same program produces requests from $124,000 to $141,700 depending on the funder, because each applies a different rate to a different base.

Federal awards. 2 CFR 200.414(f) lets an organization without a negotiated rate “charge a de minimis rate of up to 15 percent of modified total direct costs”, and says the rate “does not require documentation to justify its use and may be used indefinitely.” The 15% rate came in with the federal guidance revision that took effect on 1 October 2024; before that it was 10%. Modified total direct costs, defined in 2 CFR 200.1, include salaries, fringe, materials, supplies, services, travel and up to the first $50,000 of each subaward, and exclude equipment, rental costs, participant support costs and other listed items. That is why the rent in our example is left out of the base.

Be careful with older material. The Grants.gov instructions for the SF-424A form still refer to “the 10% de minimis rate” and a $5,000 equipment threshold, both superseded by the current regulation, which sets 15% and equipment at the lesser of your capitalization level or $10,000. Follow the regulation and the specific notice of funding.

Foundations. The Robert Wood Johnson Foundation pays 30% to nonprofits on proposals from 1 January 2024, calculated on personnel, other direct costs and consultants, and limits the rate to 5% on third-party costs if they exceed a third of direct costs. It tells applicants that shared costs belong in the budget as direct costs. The MacArthur Foundation provides “an indirect cost recovery of 29 percent of project costs on all project grants”, where project costs include allocated shared costs. The Ford Foundation has paid a minimum of 25% on eligible project grants since 2023. The Hewlett Foundation says “We do not employ a fixed minimum or maximum rate for indirect costs” and accepts a nonprofit’s proposed rate. Many smaller foundations cap indirect costs at 10% or 15%, or ask for none, so read each funder’s guidelines before you set the rate.

Revenue: show the whole picture

A program budget also shows where the rest of the money comes from. Funders want to see that the request is part of a plan, not the whole of it. List each source separately: this grant, other foundation grants pledged or pending, government contracts, earned income such as fees, and individual donations allocated to the program. The SF-424A form has a separate section for non-federal resources and a line for program income, and foundations ask the same question in their own words. Mark which sources are secured and which are pending.

In-kind support and volunteers

Donated goods, space and volunteer time make a program possible and should appear in the budget, clearly labelled as in-kind and not as cash. For federal awards that require cost sharing, 2 CFR 200.306 says volunteer services “may be counted as cost sharing if the service is necessary for the program”, valued at rates “consistent with those paid for similar work by the recipient”, and that contributions must be “verifiable in the recipient’s or subrecipient’s records”. Keep timesheets for volunteers whose time you count.

Expect the in-kind lines not to match your tax return. The Form 990 instructions say “the value of donated services or use of materials, equipment, or facilities may not be reported” as revenue or expense, though donated goods are. Our guide to in-kind donations covers recording and valuing them.

Tying it to the organization budget and the 990

Each program budget should be a slice of the organization’s budget, not a separate invention: the program lines in every program budget, plus the shared and indirect costs, should add up to the whole. If you build them from the same chart of accounts, they will.

The same split shows up on Form 990. Part IX reports expenses in three functional columns: program services, management and general, and fundraising. The instructions say program services are “mainly those activities that further the organization’s exempt purposes”, that management and general covers overall operations such as board meetings, accounting and HR, and that an organization without an allocation system “can use any reasonable method of allocation”. Their example is a staff member who spends 40% of their time on fundraising and 60% on programs, whose pay must be split the same way. Allocating staff time consistently in program budgets makes the 990, and the financial statements, straightforward. Our nonprofit overhead analysis shows what charities actually report.

Writing the budget narrative

Most funders want a short narrative with the numbers: a sentence or two per line explaining how it was calculated and why it is needed. For the example above, that means the program manager’s salary and the half-time share, the tutors’ hours and hourly rate, the fringe rate and what it covers, the basis for the rent allocation, and what the evaluator will deliver. Name the indirect rate you used and where it comes from, such as “the federal de minimis rate of 15% of modified total direct costs” or “the Foundation’s published 30% rate”.

Keep the narrative factual and tied to the activities in the proposal. A reviewer should be able to match every budget line to something the program does, and every activity to a cost. If a line will be paid by another funder, say so, so the reviewer can see that nothing is counted twice.

Common mistakes

• Leaving out shared costs. A program budget with no rent, insurance or IT is understated, and the organization subsidizes the program from elsewhere.
• Using the old 10% federal rate. Federal awards allow up to 15% de minimis; check the funding notice for any program-specific limit.
• Double charging. Charging the finance manager’s time directly and also through the indirect rate breaks federal rules and foundation trust.
• Round numbers with no basis. Show how each line was calculated, such as hours times rate or square feet times cost, in a short budget narrative.
• Treating pledges as cash. Mark pending revenue as pending.
• Mixing contractors and staff. Consultants go in a separate line, and whether someone is a contractor at all is covered in hiring independent contractors.

Where the program budget goes next

The program budget belongs in the grant proposal, with a budget narrative explaining each line. Once funded, track spending against it monthly, as our bookkeeping guide describes, and report to the funder in the same categories. Our nonprofit grants guide covers finding funders, and grant management software and budgeting software can hold program budgets once you run several.

This is reference information, not legal or tax advice. Rules vary by state and change over time. For a decision that carries real consequences, check the current text at irs.gov or your state registry, and talk to a nonprofit attorney or CPA.