Military Cost-of-Living Allowance (COLA) Guide

The Word "COLA" Refers to Three Different Things

It is easy to get mixed up because the same three letters are used for three distinct allowances:

• CONUS COLA — A pay supplement for active-duty members assigned to high-cost locations within the continental United States.
• Overseas COLA (OCONUS COLA) — A non-taxable supplement that offsets the price of goods and services for members stationed outside the United States, in territories, or in Hawaii and Alaska.
• Retiree / Annuitant COLA — The annual inflation adjustment to military retired pay and survivor benefits, tied to the Consumer Price Index.

None of the three is the same as Basic Allowance for Housing (BAH). BAH compensates for the cost of housing; COLA compensates for the cost of everything else (CONUS COLA), or for the cost of living in foreign currency at foreign prices (Overseas COLA), or for inflation across years (retiree COLA).

CONUS COLA

CONUS COLA is paid to active-duty members assigned to a duty location within the 48 contiguous states where the cost of non-housing goods and services is materially higher than the national average. The Defense Travel Management Office (DTMO) maintains the list of qualifying locations and the rate for each.

How It Is Calculated

The CONUS COLA rate depends on three variables:

• Duty station ZIP code — determines whether the location qualifies and at what index.
• Pay grade — higher grades earn higher CONUS COLA at qualifying locations.
• Dependency status — with-dependents and without-dependents rates differ.

DTMO surveys non-housing prices for groceries, transportation, recreation, services, and other categories in each location, compares them to a national reference, and produces a "spendable income index." The CONUS COLA payment for a given member is calculated from that index, the member's spendable income (a function of grade, years of service, and dependency status), and the cost differential.

How It Is Updated

CONUS COLA is reviewed annually. Locations and rates can be added, increased, decreased, or removed depending on local price movements. A duty station that paid CONUS COLA last year may not pay it this year if local prices fall back into line with the national average. Pay attention to pay-data updates in the LES Remarks section after a PCS or after the annual review.

Tax Treatment

CONUS COLA is taxable. It is included in federal taxable wages and reflected in WAGE PERIOD on the federal tax block of the LES. State taxability follows the state of legal residence's rules.

Overseas COLA (OCONUS COLA)

Overseas COLA is the larger and better-known cousin. It is paid to members assigned to duty stations outside the 48 contiguous states — including Alaska, Hawaii, U.S. territories, and overseas locations — and is intended to keep the spendable income of an OCONUS-stationed member roughly equivalent to a same-grade, same-dependency-status member in CONUS.

How It Is Calculated

OCONUS COLA accounts for two distinct effects:

• Local price differential — a Living Pattern Survey and Retail Price Schedule for each overseas location measure the cost of typical military-family purchases against a CONUS baseline.
• Currency exchange — for non-USD economies, OCONUS COLA includes a currency-conversion component that updates frequently (often every two weeks) to absorb exchange-rate movement so that the member's purchasing power stays steady.

The result is converted into a daily allowance, multiplied by the number of days at the location during the pay period, and paid through DFAS.

Tax Treatment

Overseas COLA is not taxable at the federal level. Like BAH and BAS, it does not appear in WAGE PERIOD or WAGE YTD on the federal tax block; it appears in the entitlements column of the LES but not in taxable wages.

Adjustments and Volatility

Because Overseas COLA tracks both local prices and currency, members in OCONUS locations sometimes see month-to-month variation that does not correspond to any change in their assignment. A weakening dollar against the host-nation currency increases the COLA the next pay period; a strengthening dollar reduces it. Long-term overseas planning should not assume a fixed COLA figure.

Special Cases

• Hawaii and Alaska: Both are OCONUS for compensation purposes. Both pay Overseas COLA when local prices and the index warrant.
• Unaccompanied tours: Members on unaccompanied tours generally draw the without-dependents Overseas COLA at the duty location and may have separate housing arrangements at home.
• Temporary duty (TDY): TDY in an overseas location is generally compensated through per diem and travel pay rather than COLA; COLA applies to permanent assignments.

Retiree and Annuitant COLA

Once a service member retires, "COLA" begins to mean something else entirely: the annual cost-of-living adjustment applied to military retired pay and to Survivor Benefit Plan (SBP) annuities.

How It Is Calculated

Retiree COLA is computed from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The DoD compares the third-quarter average of CPI-W to the same quarter of the prior year and applies the resulting percentage as a December-effective increase to retired pay starting in January.

For most retirees, the increase is the full CPI-W change. For working-age retirees under the Blended Retirement System and certain "REDUX" retirement elections, the formula was historically modified — for example, COLA minus 1 percentage point until age 62, with a one-time "catch-up" at 62. Members approaching retirement should confirm the formula that applies to their specific retirement plan.

SBP Annuitants

Survivor Benefit Plan annuities receive the same CPI-W-based annual COLA as the retired pay they are based on. This is one of the principal arguments for SBP enrollment: an inflation-adjusted lifetime benefit is unusually difficult to replicate in the private insurance market.

How Each COLA Appears on the LES (or RAS)

Active-duty members see CONUS COLA and Overseas COLA on their monthly LES in the Entitlements column. The Pay Data block shows the JFTR location code that determines the rate. Retirees see the annual COLA reflected on their Retiree Account Statement (RAS) starting with the first January after the adjustment is announced.

Decision Criteria: PCS Planning Around COLA

Members weighing assignment options should keep three things in mind:

• COLA is not BAH. A high-BAH location can also be a high-COLA location, but they answer different questions. BAH pays for housing; COLA pays for groceries, transportation, and the rest of life.
• COLA can disappear. CONUS COLA at a marginal location is frequently added or removed at the annual review. A budget that depends on CONUS COLA continuing is fragile.
• Overseas COLA's currency component is volatile. Members planning long-term savings and travel against an overseas tour should model with current rates and stress-test against past exchange-rate movement.

Common Mistakes

• Confusing CONUS COLA with BAH. They are separate entitlements with separate authorities and tax treatment.
• Assuming Overseas COLA is taxable. It is not, at the federal level.
• Treating COLA as fixed. Both CONUS and OCONUS COLA can change rate during a tour, and Overseas COLA can change every pay period.
• Confusing retiree COLA with the annual active-duty pay raise. Both are annual, both are inflation-influenced, but they are computed differently and authorized through different processes — the active-duty raise is set in the National Defense Authorization Act each year and is generally tied to the Employment Cost Index, while retiree COLA tracks CPI-W.

Verifying Your COLA

Active-duty members can confirm their CONUS COLA or Overseas COLA rate using the calculators published by the Defense Travel Management Office at travel.dod.mil. Retirees and SBP annuitants can confirm the annual COLA percentage on the official DFAS retired-pay news pages and on their RAS in January each year.

Related Pages

To see the basic pay that COLA supplements, start at the enlisted, officer, or warrant officer pay tables. For the housing allowance that often gets confused with COLA, see the BAS and BAH overview on the home page. For how COLA shows up alongside other entitlements on the pay statement, see Reading Your LES. For the broader category of pays that vary by assignment, see Special and Incentive Pays.