This mini-narrative explains what qualifies a transaction as program income and provides information on the requirements affecting the use and reporting of it. Grantees will find this information useful when considering how program income should be managed.
Program income is the gross income earned by the grant recipient during the grant period that is directly generated by a supported activity or earned as a result of the award. Program income is formally defined in 45 CFR 74.2(ag) and 92.25(b). Grantees are encouraged to earn income to defray program costs.
All income generated as a direct result of an ACF-funded project is considered program income and must be used for the purpose and under the conditions applicable to the award. If the cost is allowable under the federal grant, then the cost would be allowable using program income. Likewise, program income cannot be used for costs that are not allowable under grant funds.
Examples of program income include, but are not necessarily limited to:
- Fees for services performed.
- Use or rental fees for space or equipment acquired under federally funded projects and the sale of such equipment which has been determined to be excess to the current needs of the grantee and for which disposal instructions have been requested and received from the cognizant regional grants officer.
- License fees and royalties on patents and copyrights.
- Publication sales.
Grant recipients are restricted from using equipment purchased with federal funds to provide services for a fee that compete unfairly with private companies that provide equivalent services. (See 45 CFR 74.34(b) or 92.32(c) for limited exceptions to this restriction.)
Several types of transactions do not qualify as program income, including:
- Revenues raised by a government recipient under its governing powers, such as taxes, special assessments, levies and fines (unless the revenues are specifically identified in the grant agreement or federal agency regulations as program income). (See 45 CFR 92.25(d))
- Third-party in-kind contributions.
- Credits, purchase discounts, rebates, allowances, recoveries or indemnities on losses, insurance refunds, adjustments for overpayments and other erroneous charges. These are considered "applicable credits" under the Cost Principles.
- Interest earned on advance of federal cash.
- Gifts or financial assistance from another source, such as a non-federal grant, charitable contributions and a federal grant received for another purpose.
Program income generated by grant activities during the period of grant support can be retained by the recipient and used in one or more of the following ways (as discussed in 45 CFR 74.24(b) or 45 CFR 92.25(g)):
- Added to federal funds awarded to the grantee and used to further eligible project or program objectives, which is called the additional cost alternative.
- Used to finance the non-federal share of the project. Under this method, which is called the "cost-sharing or matching alternative", program income is used for allowable costs of the project or program, and the costs count toward satisfying the matching requirement of the award. However, program income does not become non-federal share until it is actually spent (on allowable items).
- Deducted from the total project or program allowable costs to determine the net allowable costs on which the federal share of costs is based. This method is called the "deduction alternative."
Typically, a decision will have been made at the time of issuance of a grant award regarding the appropriate use of program income. Head Start grantees generally are authorized to use program income under the 'additional cost' alternative, the first option appearing above. None the less, each grantee should verify that such is the case for them by checking that it is reflected in their current grant award, i.e. the contents of Box 21 of their notice of award. Grantees contemplating using program income under any of the alternatives above for allowable costs in other than the award period in which it is 'earned', should check with their awarding grants management office to determine if prior approval is required.
Grant recipients must disburse program income and interest earned on such income before requesting additional cash payments or drawdowns from the grant. Costs incident to the generation of program income may be subtracted from the gross income generated to determine how much the grantee must treat as program income, so long as these costs have not been charged to the award (45 CFR 74.24(f) and 92.25(c)). In this situation only the net income would be considered to be program income.
Certain types of program income, such as royalties from patents and inventions, and proceeds from the sale of property, are treated in special ways. (Refer to 45 CFR 74.24(h) and 92.25(e) for a discussion of copyright, patent and invention royalties; and to 45 CFR 74.30 - 37 and 45 CFR 92.31 - 32 for treatment of proceeds from the Sale of Property.)
There are no federal requirements governing the disposition of program income earned after the end of the project period unless the terms and conditions of the award or ACF regulations provide otherwise (45 CFR 74.24(e) and 92.25(h)).
Records for the receipt and disposition of program-related income must be maintained by the grantee in the same manner as required for federal and matching funds.
Various items on the Federal Financial Report (SF-425) are used to report on the status of program income during the period covered by the report. The Remarks section of the SF-425 should describe the sources (i.e., how the income was earned) and the intended disposition (i.e., how the income will be used in support of project activities).
Program Income. Fiscal Assistant. HHS/ACF/OHS. 2014. English.
Last Reviewed: March 2014
Last Updated: November 13, 2014