The Overseas Cost of Living Allowance (COLA) is a non-taxable supplemental pay allowance, designed to offset overseas prices of non-housing goods and services. 

Understanding COLA Calculations

A standardized methodology establishes COLA for Service members at overseas duty locations to ensure that they can afford to purchase the same level of goods and services overseas as if stationed in the Continental United States (CONUS).

Two surveys determine the relative cost of living overseas compared with CONUS. The Living Pattern Survey (LPS), conducted every three years, captures input from Service members and their families to establish where and how they purchase goods and services. The Retail Price Schedule (RPS), conducted every year, collects prices for approximately 120 goods and services.

Overseas COLA is intended to equalize purchasing power so that Service members can purchase the same level of goods and services overseas as they could if they were stationed in CONUS. The COLA index is a measured indicator of the differences in the cost of goods and services between the CONUS average and an overseas location. The index takes into consideration the importance and items such as car insurance, gasoline, and day care to ensure that more dollar significance is placed on these items. An index of 100 or higher means that prices in a particular location are equal to or higher than in CONUS; an index below 100 signifies that prices are less expensive than in CONUS. If average prices in CONUS are rising at a greater rate than those overseas, COLA will decrease. However, if prices rise or fall at the same rate, COLA will stay the same. Overseas COLA fluctuations should be considered in household budgeting, and fixed expenses, such as car payments, should be based on what a Service member can afford without COLA.