Monitoring Expenses - Computing Indirect Cost-Changes

Last Updated: December 12, 2025 12:05:13 PM PST

Find out how to recalculate indirect costs when rebudgeting sponsored project awards. Indirect costs (IDC) may need to be recalculated if funding for a sponsored project award is rebudgeted. This occurs because some expenses are subject to IDC, and others are excluded.

When and how IDC should be recalculated

Example 1: IDC increase

When you rebudget from an expense account that is not subject to IDC (such as equipment) into an account that is subject to IDC (such as salary), you need to calculate the amount to be rebudgeted to IDC. The calculation below assumes these details:

The IDC rate is 52%.
The amount required is $2,000.
You are transferring from equipment and to salaries.

Calculate the amount of IDC that will be added.
- In this example, $2,000 x .52 = $1,040 in IDC.
In your budget journal, include a:
- Debit of $3,040 to equipment
- Credit of $2,000 to salaries
- Credit of $1,040 to IDC
Check your math:
- $3,040 divided by 1.52 = $2,000
- $2,000 + $1,040 = $3,040

Example 2: IDC decrease

When you rebudget from an expense account that is subject to IDC (such as supplies) into an account that is not subject to IDC (such as equipment), there will be corresponding savings in IDC. The calculation below assumes these details:

The overhead rate is 52%.
The amount required is $3,000.
You are transferring from supplies to equipment.

Calculate the amount of IDC that will be saved.
- In this example, $3,000 / 1.52 = $1,974 in IDC.
In your budget journal, include a:
- Debit of $1,974 to supplies
- Debit of $1,026 to IDC
- Credit of $3,000 to equipment
Check your math:
- $1,974 x .52 = $1,026
- $1,974 + $1,026 = $3,000

General guidelines

The IDC rate is applied only to the first $25,000 of each subaward PO. Once that threshold is reached, no more IDC will be assessed on the subaward PO.
Subawards show up on the ledger under two different expenditure types: 533000 - Subcontract less than 25K and 533100 - Subcontract greater than 25K.
If the subaward is split between two awards, the IDC on the first $25,000 will be prorated based on the amount of payment charged to each award. (See examples below for clarification.)
When an award with a subaward is renewed, the subaward must also be renewed.
A change order to the existing PO is the preferred method, but the subaward officer in Purchasing may issue a new PO. If a new PO is issued, the automated system will assess IDC on the first $25,000.
When submitting a proposal that includes a new subaward to another entity, check with the subaward officer to confirm that the proposed subaward meets the subaward criteria. Without prior confirmation, you risk having IDC assessed on total costs instead of the first $25,000.

These sample situations demonstrate how IDC is calculated in different circumstances:

Example 3: One project, over threshold

A $100,000 subaward is issued to Salk Institute.
IDC rate is 52%.
The subaward PO number, 12345678, is issued June 1.
The subaward PO is placed on project 1021034, award 123456-00001 as item 0001.
A payment of $15,000 is made to the subrecipient on July 15. IDC calculation: $7,800 IDC ($15,000 x .52) is charged to project 1021034, award 123456-00001.
- Note: Because there is only one item number on the PO, the payment is applied to PO item 0001.
Another payment of $15,000 is made to the subrecipient on Aug. 1. IDC calculation: $5,200 IDC ($10,000 x .52) is charged to project 1021034, award 123456-00001.
- Note: The IDC rate is calculated only on the first $10,000 of this payment because the $25,000 ($15,000 from the first payment + $10,000 from the second) threshold has been reached. No more IDC will be charged on this PO.

Example 4: Two indexes, over threshold

A $40,000 subaward is issued to Scripss Clinic.
The IDC rate is 52%.
The subaward PO number, 10876543, is issued July 1.
The subaward PO is divided between two indexes:
- $20,000 is placed on project 1021034, award 123456-00001 as item 0001.
- $20,000 is place on project 2021056, award 123456-00001 as item 0002.
A payment of $30,000 is made to the subrecipient on August 15. IDC calculation:
- $10,400 IDC ($20,000 x .52) charged to project 1021034, award 123456-00001
- $2,600 IDC ($5,000 x.52) charged to 2021056, award 123456-00001
  - Note: Unless instructed otherwise, Disbursements will apply the payment (as much as possible) to PO item 0001. Once the $20,000 limit for item 0001 of $20,000 was reached, the remainder of the payment, $10,000, was to be applied to item 0002. But because the $25,000 ($20,000 + $5,000) threshold was reached, no IDC was charged on the remaining $5,000, and no more IDC will be charged on this PO.

Example 5: Two indexes, split between two funds

A $300,000 subaward is issued to Sharp Hospital.
The IDC rate is 26%.
The subaward PO number, 10065432, is issued September 1.
The subaward PO is divided between two indexes:
$150,000 is placed on project 1021034, award 123456-00001, as item 0001.
$150,000 is place on project 1045555, award 789234-00001, as item 0002.
A payment of $25,000 is made to the subrecipient on September 30 IDC calculation (standard):
$6,500 IDC ($25,000 x .26) charged to project 1021034, award 123456-00001.
- Note: Unless instructed otherwise, Disbursements will apply the payment to PO item 0001.
IDC calculation (two funds):
$3,250 IDC ($12,500 x .26) charged to project 1021034, award 123456-00001
$3,250 IDC ($12,500 x .26) charged to project 1045555, award 789234-00001
- Note: Disbursements will split the payment between the two funds at your request.

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