Federal grant cost-share requirements explained (2 CFR Part 200)

What cost-share is and why it matters

Cost-share (also called matching funds or matching contribution) is the recipient's non-federal contribution to the total project cost. Federal grant programs require cost-share to ensure the recipient has 'skin in the game' and to leverage federal dollars.

Under 2 CFR § 200.306 (Uniform Guidance): 'Cost sharing or matching means the portion of project costs not paid by Federal funds.' Cost-share must be: verifiable from the recipient's records; not included as cost-share on other federally funded projects; necessary and reasonable; allowable under federal cost principles (2 CFR Part 200, Subpart E); not paid by Federal funds (with narrow exceptions).

The formula depends on how the requirement is expressed: - Percentage of total project cost: Cost-share amount = Total project × Required % minus Federal award amount - Percentage of Federal award: Cost-share amount = Federal award × [Required % ÷ (1 - Required %)] (the matching ratio)

Always confirm the percentage basis (total project vs federal award) in the Notice of Funding Opportunity — these formulas produce different results.

What counts as allowable cost-share

2 CFR § 200.306 identifies allowable cost-share sources:

Cash contributions (easiest to document): organizational funds, state or local government funds, private foundation grants, revenue earned on the project. Must be expended during the grant period of performance.

In-kind contributions (allowable but require more documentation): Third-party volunteer labor — valued at the fair market rate for the service, not the volunteer's wage rate for unrelated work. Donated equipment — valued at fair market value or depreciation, not original cost. Donated space — valued at fair rental value (what comparable space would rent for). Donated professional services — valued at the going rate for the service if provided by a private contractor.

Not allowable: other federal grant funds (unless specifically authorized by statute). Costs not allowable under federal cost principles (entertainment, lobbying, unallowable salaries per OMB guidelines). Commitments made before the award's start date (pre-award costs require prior approval).

Documentation requirements that survive audit

Cost-share is a frequent audit finding because documentation requirements are strict and records-keeping is often an afterthought:

For employee time: contemporaneous timesheets or effort reports signed by the employee and supervisor, showing hours on the grant project. After-the-fact effort reporting is a major audit red flag. The uniform guidance (2 CFR § 200.430) requires that effort be based on records that accurately reflect the work performed.

For volunteer labor: signed time logs from the volunteer with description of activities; documentation of the fair market rate for the service (job postings, salary surveys, comparable contractor invoices).

For donated equipment: acquisition records showing original cost; appraisal or valuation documentation for fair market value if different from book value.

For third-party cash contributions: letters of commitment from donors before the award; bank records or cancelled checks showing actual receipt.

Retention: 2 CFR § 200.334 requires retention of all records for 3 years after the final financial report is submitted to the awarding agency (longer if litigation or audit is pending).

The federal funds prohibition and its exceptions

The prohibition on using federal funds as cost-share (2 CFR § 200.306(b)(5)) is a hard rule with narrow exceptions. The exceptions require explicit statutory authorization — it must appear in the program's authorizing legislation or Notice of Funding Opportunity.

Common legitimate exceptions: USDA Rural Development programs (some allow state CDBG funds as match). Department of Transportation programs (some allow state transportation funds). HHS programs (some allow Medicaid as a match source under specific conditions).

Common mistakes: using NIH Phase I award funds as cost-share for an NSF grant (not allowed). Using SBA Paycheck Protection Program (PPP) funds as cost-share (not allowed — PPP was a federal program). Using CDBG funds as cost-share for another CDBG project (not allowed — same federal program).

The Federal Grant Cost-Share Calculator tracks your cost-share sources and flags any that may contain federal funds so you can get compliance confirmation before including them in your budget.

Primary sources cited

• 2 CFR § 200.306 — Cost Sharing or Matching
• 2 CFR Part 200 — Uniform Administrative Requirements
• Grants.gov — Federal Grant Opportunities