Allowable vs. Non-Allowable Grant Expenses: Complete Guide for 2026

What Are Allowable vs. Non-Allowable Grant Expenses?

Understanding the difference between allowable and non-allowable grant expenses is essential for anyone managing grant funds. Allowable expenses are costs that meet the grantor’s requirements, directly support the funded project’s goals, and comply with all regulations. These costs must align with the grant’s purpose, follow the funder’s guidelines, and adhere to federal, state, or private grant policies.

In contrast, non-allowable expenses are costs that cannot be charged to the grant. These may be excluded because they do not advance the project’s objectives or are specifically prohibited by the funding agency. Each grant—whether federal, state, or private—will outline its own rules. Always consult your grant agreement and the funder’s policies before making purchases or commitments. For a broader overview of grant types and eligibility, see our guide on what is a grant, definition, types, eligibility, and how to apply.

Common Examples of Allowable Grant Expenses

Allowable grant expenses are those that are necessary, reasonable, and clearly connected to the project. Typical examples of allowable costs include:

– Salaries and wages for staff working on the project

– Fringe benefits such as health insurance or retirement contributions

– Supplies and materials needed for project activities

– Equipment purchases, if approved in advance

– Travel costs essential to the project’s success

– Consultant or contractor fees for specialized expertise

– Participant support costs, such as stipends or training materials

For federal grants, the Uniform Guidance (2 CFR 200) and agency-specific policies provide detailed lists. For instance, the NIH and HRSA publish comprehensive guidance on allowable costs ([NIH Grants Policy Statement](https://grants.nih.gov/grants/policy/nihgps/HTML5/section_14/14.10_allowable_and_unallowable_costs.htm)).

Some grants may also allow indirect costs, such as administrative overhead, but these must be negotiated and approved. Always check if prior approval is needed for large purchases or subawards. For more on creating a compliant project budget, read our expert guide on how detailed should a project budget be in a grant application.

Common Examples of Non-Allowable Grant Expenses

Non-allowable grant expenses are costs that cannot be charged to the grant budget. These often include:

– Entertainment, alcohol, or social events

– Lobbying or political activities

– Fines, penalties, or legal settlements

– Gifts, personal items, or celebrations

– Fundraising or marketing unrelated to the project

– Capital improvements or building renovations (unless specifically permitted)

– Expenses incurred before or after the grant period

Other examples include first-class travel, personal vehicle repairs, or costs that benefit individuals rather than the project. Charging non-allowable expenses can result in compliance violations and financial penalties. When in doubt, seek written approval from your funder. For more tips on avoiding common grant mistakes, check out our article on 7 common grant application mistakes and how to avoid them in 2026.

Federal vs. Private Grant Expense Rules: Key Differences

Federal grants are subject to strict regulations, such as the Uniform Guidance (2 CFR 200), which clearly defines allowable and unallowable costs. These rules are designed to ensure transparency and accountability in the use of public funds.

Private and foundation grants may have different requirements or additional restrictions. For example, some private funders may allow certain marketing costs or capital expenses that federal grants prohibit. Always review the specific terms and conditions of each grant, as rules can vary widely.

If you are unsure about an expense, reach out to your grant officer or funder for clarification before spending. Proactive communication helps prevent costly mistakes. To better understand the grant process from start to finish, see our step-by-step grant process guide.

Grant Documentation and Record-Keeping Requirements

Accurate documentation is vital for grant compliance. Maintain detailed records for every expense, including receipts, invoices, contracts, timesheets, and travel logs. These records should clearly show how each cost supports the project.

Implement a grant compliance checklist and conduct regular internal reviews to catch errors early. Many funders require periodic financial reports and may request supporting documents at any time. Good record-keeping not only ensures transparency but also makes audits and financial reviews much easier.

Consider using grant management software or dedicated spreadsheets to track expenses and approvals. This helps your organization stay organized and ready for any compliance review. For best practices on managing grants, read our article on grant management best practices: how to track, report, and stay compliant in 2026.

Consequences of Misusing Grant Funds

Using grant funds for non-allowable expenses can lead to serious consequences, including:

– Repayment of disallowed costs to the funder

– Loss of current and future grant opportunities

– Legal action, fines, or other penalties

– Damage to your organization’s reputation and credibility

To avoid these risks, always follow your grant’s budget guidelines and seek approval for any questionable expenses. Establish clear internal controls and train staff on compliance requirements. For more on compliance and reporting, see our guide to grant compliance, reporting, and fund management for nonprofits.

FAQs: Allowable and Non-Allowable Grant Expenses

**What are allowable expenses under a grant?** Allowable expenses are costs that directly support the grant’s objectives and are permitted by the funder’s guidelines.

**What are non-allowable expenses in grant funding?** These are costs that are prohibited by the grant agreement or do not align with the project’s purpose.

**How do I know if an expense is allowable under my grant?** Review your grant agreement, funder policies, and consult with your grant officer if unsure.

**What happens if I use grant funds for non-allowable expenses?** You may have to repay the funds, lose future funding, or face legal consequences.

**Are salaries considered allowable expenses?** Yes, if they are for work directly related to the grant project.

**Can I use grant money for travel expenses?** Yes, if the travel is necessary for the project and follows the funder’s travel policies.

**What documentation should I keep for grant expenses?** Keep all receipts, invoices, timesheets, and approval forms related to each expense. Good records support compliance and make audits easier.

**Can indirect costs be charged to a grant?** Sometimes. Indirect costs, like administrative overhead, may be allowed if negotiated and approved by the funder.

If you’re preparing a grant proposal and need help with budgeting, check out our step-by-step guide to writing a winning grant proposal.