Program income is income earned in connection with a sponsored project during the period of the main award.
Per 2 CFR 200.80: Program income includes but is not limited to income from fees for services performed, the use or rental or real or personal property acquired under Federal awards, the sale of commodities or items fabricated under a Federal award, license fees and royalties on patents and copyrights, and principal and interest on loans made with Federal award funds.
It must be used as follows:
- Expenditures charged to a program income account must be allowable, allocable, and treated consistently in relation to the activity supported by the sponsor in accordance with the cost principles in the Uniform Guidance 2 CFR 200 and in accordance with the specific terms and conditions of the award.
- Expenditures must be incurred during the project period of the associated award.
- Program income accounts typically operate on a cash basis where expenditures may not exceed the amount of revenue collected. However, because program income revenue is often earned after expenses (i.e, puting on a conference), UM allows such accounts to run a negative balance when income is anticipated.
- In all cases, PI's department is responsible for any expenses in excess of revenue collected.
- In general, any earned program income should be expended prior to sponsors’ funding.
- F&A costs should be collected on program income accounts at the same rate applied to the sponsored agreement which generates the income. F&A costs should be included when determining the rates for registration fees, sales of materials, etc.
- In the event the awarding sponsor authorizes the treatment of program income using either the additive or matching alternative method, and there is excess program income over a stipulated limit, the overage will be treated using the deductive method, unless the sponsor specifically approves in writing that the University may retain the remaining income. If the sponsor has not been fully paid, the amount of remaining program income will be deducted from the final amount billed to the sponsor. If the sponsor has fully paid, the amount of remaining program income will be refunded to them.
Examples include, but are not limited to:
- Fees earned from services performed under the award, such as those resulting from laboratory testing.
- Rental or usage fees, such as those earned from fees charged for use of computer or equipment purchased with grant funds.
- Funds generated by the sale of commodities and research materials, such as tissue cultures, cell lines, or research animals.
- Proceeds from the sale of software, tapes or publications.
- Admission fees.
- Registration fee charged to participants for a workshop or conference sponsored by a grant award.
The federal definition of program income also includes license fees and royalties on patents and copyrights. However, unless restricted otherwise by the award terms and conditions, the University has no obligation to the Federal Government with respect to income derived from license fees and royalties. License fees, royalties on patents and copyrights are dealt with separately so please contact UM's Director of Technology Transfer/ Office of Technology Transfer (x6670).
Program income does not include:
- Interest earned on advances of Federal funds,
- Receipt of principal on loans, rebates, credits, discounts, etc. or interest earned on them, unless otherwise specified in the award terms and conditions, or the sponsor regulations.
- Revenues collected after the termination of the project award.
Treatment of Program Income
Program income can be handled in one of four ways, depending on the sponsor’s policies or the terms and conditions of the award. The four methods are listed below and examples are provided. Program income earned during the project period is retained by the recipient and can be used in the following ways:
- Additive Method: Income is added to the funds committed to the project by the sponsor (and the University if cost share is included) and used to further eligible project activities or objectives.
- Deductive Method: Income is deducted from the amount of the project costs to be to be reimbursed by the sponsor.
- Matching Method: Income is used to finance the non-federal share of the project (i.e. used to fulfill matching or cost sharing requirements.)
- Additive / Deductive Method: Income received up to a maximum amount specified by the sponsor is added to the funds committed by the sponsor and used to further eligible project activities or objectives. Any income exceeding the maximum amount is deducted from the amount of project costs to be reimbursed by the sponsor.
Normally, the first use or “additive method” applies to all research projects, unless the terms and conditions of the award state otherwise. Normally, the second use or “deductive method” applies to all other types of projects, unless the terms and conditions of the award state otherwise.
Federal and non-federal sponsors do differ in their treatment of program income. Principal Investigators and sponsored program administrators must be aware of which use applies to a specific award. For assistance with determining program income usage, questions should be directed to ORSP.
Accounting for Program Income
Separate Program Income Accounting
The University accounts for program income in a separate grant Banner Index Number (BIN), and will establish a program income BIN for each project that will generate program income. The BIN is established at the initiation of the associated award, or if not known at that time, it will be established as soon as it is identified and approved by the sponsor.
- The Department is responsible for receiving/collecting the program income.
- When program income is received, the income must be deposited directly into the Program Income account in accordance with standard University procedures for deposits.
- Budgeted expenses that are to be paid from program income should be processed directly on the income BIN. Expenses that are not allowable on the related award number are not allowable on the program income account, unless specifically approved by the sponsor.
- F&A (indirect) costs will be charged on all expenses related to program income at the same rate as the main award number. Exception to this policy are made only with the approval of the Vice President for Research and Development.
Establishment of Rates
If program income will be generated from the sales of goods or services, a cost analysis may be needed to determine the rate to use for sales. If rates need to be established, the Principal Investigator and/or Departmental Administrator are advised to contact Business Services for assistance.
Income Continuation After Sponsored Project Termination
Once the sponsored project terminates, any future income would not be considered program income. If the generation of income is expected to continue after the termination of the sponsored project, the Principal Investigator and/or the Departmental Administrator are advised to contact the Office of Planning, Budgeting, and Analysis (OPBA) to determine how future income will be handled.
- Identify potential program income at proposal stage and indicate program income on checklist, or notify ORSP if unanticipated program income is identified during the life of the project.
- If assistance is needed in establishing rates, contact Business Service. If income is anticipated to last beyond the life of the sponsored project, contact OPBA.
- Develop a plan for the use of the program income, and work with ORSP staff to ensure that the program income is included in proposal budget as appropriate.
- Verify that program income revenue is received and deposited correctly.
- Follow regulatory requirements and the specific terms and condition of the award to ensure that program income is expensed in an allowable manner.
- Work with ORSP to obtain sponsor approval, when needed, if program income exceeds or falls short of originally budgeted amounts.
- Review financial status of program income BIN to ensure that program income is spent first, before sponsor’s funding, and that program income expenditures do not exceed revenue.
- Verify the correct expenditure of program income on any reports for closeout with the associated award account.
- Provide administrative assistance to the Principal Investigator in collecting program income, monitoring the expenditure of program income, and reconciling the financial position of the account.
Department Chairs, Unit Directors, and Deans
- Ensure that any activity that could generate program income is identified on the Checklist with the proposal, or if arising during the life of the project, is disclosed to ORSP as soon as possible.
- Review and approve Principal Investigator’s planned use of program income.
- Monitor the fiscal position of program income accounts in the department to ensure that appropriate procedures are followed.
Office of Research and Sponsored Programs
- Review proposal checklist and work with Principal Investigator to identify any potential program income. Advise Principal Investigator on the proper use and budgeting of program income.
- Upon project award, establish program income BIN number, along with the main award BIN number. Review and approve planned use of program income.
- Assist the PI and department in monitoring the program income BIN to ensure expenditures are appropriate, allowable, and do not exceed revenues received.
- At closeout, include program income in financial reports to the sponsor, as required, and address any balance remaining according to the applicable regulations and terms of the project award.
Office of Business Services and Office of Planning, Budget, and Analysis
- Assist and advise faculty and staff with rate development in relation to the generation of program income.
- Assist and advise faculty and staff how to manage any future revenues that may be anticipated beyond the life of the sponsored project.
Examples of Program Income use Methods
|Estimated Program Income||$15,000|
|Total Available for Project Expenses||$165,000|
|Estimated Program Income||$15,000|
|Total Available for Project Expenses||$150,000|
|Required Cost Sharing (University)||$15,000|
|Estimated Program Income||$15,000|
Total Available for Project Expenses
|Estimated Program Income||$35,000|
|Agency Limit of Program Income (Additive - In budget)||$25,000|
|Total Available for Project Expenses||$175,000|