TLDR
Program income is gross income earned by a non-federal entity from activities supported by a federal award. Under 2 CFR 200.307, program income must be reported on the SF-425 Federal Financial Report and treated according to one of three methods — additive, deductive, or matching — specified in the Notice of Award. The additive-versus-deductive election is made at award time, affects total project funding, and is rarely revisited until audit. Most organizations forget to report program income on the FFR entirely.
BLUF
Program income is gross income generated by grant-supported activities during the award period. It must be reported on the SF-425 Federal Financial Report and treated according to the method specified in the Notice of Award — additive, deductive, or matching. The deductive method is the federal default. Unreported program income is a compliance finding. Program income earned after the award period generally does not require federal remittance unless the award specifies otherwise.
TL;DR
- Defined in: 2 CFR 200.307
- What it is: gross income from grant-funded activities during the period of performance
- Three methods: additive (expands scope), deductive (reduces federal draw), matching (fills match requirement)
- Default method: deductive, when NOA is silent
- Reported on: SF-425, Section 10i
- Post-period income: generally not reportable unless award specifies
What counts as program income
Program income is income earned during the period of performance from activities that are directly supported by the federal award. Common examples in nonprofit grants:
- Service fees charged to participants in a grant-funded program
- Registration fees for training delivered with grant staff
- Sales of materials produced under the award
- Rental income from equipment or space acquired with grant funds
- Proceeds from the sale of grant-funded property
What does not count as program income:
- Donations to the organization
- Interest earned on grant cash advances (governed by 2 CFR 200.305)
- Income earned from activities not supported by the award
- Membership fees to the organization
The “supported by the award” language is the key test. If a staff member funded by a grant provides a service and charges a fee, that fee is program income. If an unfunded staff member provides the same service and charges a fee, it is not.
The three treatment methods
Additive method
Under the additive method, program income is added to the federal award and used to expand program activities. The federal share stays the same; total project spending increases.
Example: A workforce development grantee receives $500,000 federal, is required to earn $0 match, and generates $30,000 in training registration fees. Under the additive method, total project spending can be $530,000 — the $30,000 expands the number of participants served.
This method is common when the program has unmet demand that additional resources can address.
Deductive method (federal default)
Under the deductive method, program income reduces the amount of federal funds drawn. Total project scope stays constant; the organization draws less federal money.
Example: Same grantee earns $30,000 in fees. Under the deductive method, total project spending is still $500,000 — but the grantee draws only $470,000 in federal funds, with $30,000 coming from program income.
When the Notice of Award is silent on method, the deductive method applies. This is a surprise for many grantees who assumed income would expand their capacity.
Matching method
Under the matching method, program income is applied toward the non-federal match requirement. This is most valuable when an organization must raise 20-25% match but has difficulty generating cash or in-kind contributions from other sources.
Example: A grantee with a 25% match requirement earns $20,000 in service fees. Under the matching method, the $20,000 satisfies a portion of the match obligation, reducing the need for additional contributions.
Reporting on the SF-425
Program income is reported in Block 10i of the SF-425 Federal Financial Report. The block captures:
- Program income earned during the reporting period
- The method used (additive, deductive, or matching)
- The amount expended from program income
Grantees who generate program income but leave Block 10i blank are filing incomplete FFRs. Auditors check FFRs against general ledger revenue accounts for the award period. Unreported program income generates a compliance finding even when the income itself was properly used.
Program income and grant closeout
Program income generated during the award period that has not been expended by the end of the period of performance requires attention at closeout. Standard treatment at closeout:
- Additive method: unexpended program income may be available to carry forward if the agency approves a no-cost extension; otherwise it may need to be remitted
- Deductive method: the final FFR shows reduced federal expenditures; any unexpended program income remaining at closeout should be discussed with the program officer
- Matching method: program income applied as match is reported on the final FFR as non-federal match; unexpended program income beyond match requirements follows deductive or additive rules per the award
Always confirm closeout treatment with the program officer before the final report. Do not assume unexpended program income can be retained.
Post-award period income
Under 2 CFR 200.307(f), income earned after the end of the period of performance is generally not subject to program income reporting requirements. This covers situations where grant-funded equipment continues generating rental income, or grant-trained staff continue delivering fee-based services, after the award closes.
However, some federal agencies include award conditions that extend program income obligations beyond the period of performance — especially for construction grants, equipment purchases, and capacity-building awards. Read the Notice of Award carefully for any such conditions.
Common compliance failures
- No program income reported on FFR — income is generated and retained, but Block 10i is left blank
- Wrong method applied — grantee assumes additive applies when NOA is silent (deductive is the default)
- Commingled tracking — program income mixed with general operating revenue and not traceable to specific awards
- Post-period income mishandled — income generated after closeout treated as grant revenue when it may be unrestricted
- Interest on advances not remitted — failure to distinguish interest (remittable under 2 CFR 200.305) from program income
How GrantPipe helps
GrantPipe tracks program income by award from the point of setup. The award record captures the treatment method specified in the Notice of Award, surfaces program income earned against each reporting period, and feeds the SF-425 reporting workflow. When closeout approaches, unexpended program income balances are visible in the award record so the finance team can act before the final FFR is due — not after. Start with a free trial to build program income tracking into your grant compliance workflow.
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- Program income
- Gross income earned by a non-federal entity during the period of performance from activities supported by a federal award. Includes fees for services, sales, and rental income from grant-funded activities. Does not include interest on grant advances.
DEFINITION
- Additive method
- Program income treatment under which earned income is added to the total project funding, expanding the scope of the program. The federal share remains the same; total project activity increases.
DEFINITION
- Deductive method
- Program income treatment under which earned income is subtracted from total federal expenditures, reducing the amount of federal funds drawn. The total project scope remains the same; less federal money is spent. This is the federal default when no method is specified.
DEFINITION
- Matching method
- Program income treatment under which earned income is applied toward the non-federal match requirement. Reduces the amount of other non-federal contributions needed to meet cost-sharing.
DEFINITION
- Period of performance
- The start and end dates of a federal award during which costs are allowable and program income is reportable. Program income earned outside this period generally has different treatment rules.
DEFINITION
Q&A
How does a nonprofit know which program income method applies?
The Notice of Award specifies the program income treatment method. Look for language in the award conditions or special terms section. If the Notice is silent, the deductive method applies by default under 2 CFR 200.307. When in doubt, ask the program officer in writing before the first reporting period.
Q&A
Can a grantee change the program income treatment method mid-award?
Changing the treatment method requires an amendment to the Notice of Award with prior approval from the federal awarding agency. The change request should document why the current method creates a program delivery problem and how the alternative serves program goals. Method changes are not common and are not guaranteed.
Q&A
How should program income be tracked in the general ledger?
Program income should be tracked in a dedicated account or cost center for each award generating it. The account should capture gross income as it is earned, not net of expenses. Expenses paid from program income are tracked separately and reported on the SF-425 as either additional allowable expenses (additive), reductions to federal draws (deductive), or match contributions (matching).
Frequently asked