Cost of Living Allowance (COLA)

What COLA Is

Per DOD FMR Volume 7ADOD FMR Volume 7A Chapter 67 (CONUS) and Chapter 68 (Overseas), Cost of Living Allowance (COLA) compensates members stationed in locations where cost of living exceeds the average. The pay offsets goods and services costs higher than typical CONUS locations.

COLA is taxable income (unlike BAH and BAS which are tax-exempt).

Two COLA Categories

CONUS COLA

For members stationed at designated CONUS high-cost locations.

• Specific CONUS locations with high cost of living
• DOD designates locations annually
• Examples: Hawaii (designated despite being state), Alaska (designated despite being state), specific high-cost mainland locations
• Rate based on location, rank, and dependent status

Overseas COLA (OCOLA)

For members stationed overseas where local cost of living exceeds CONUS average.

• All overseas duty stations may have OCOLA based on local prices
• Rate varies by location
• Adjusts for currency exchange and local price changes
• May be substantial for high-cost overseas locations (Tokyo, Seoul, etc.)

CONUS COLA Designations

Per DOD FMR Volume 7ADOD FMR Volume 7A Chapter 67, specific CONUS locations qualify.

Common CONUS COLA Locations

• Hawaii (all military installations)
• Alaska (specific locations)
• Specific high-cost mainland locations
• Designated by Per Diem, Travel and Transportation Allowance Committee (PDTATAC)

CONUS COLA Rate Calculation

Rate based on.

• Location-specific cost of living index
• Member's rank
• Dependent status (with or without)
• Years of service in some calculations

Specific rate published annually per location.

OCOLA Calculations

OCOLA is more complex than CONUS COLA.

Factors

• Local cost of living index
• Currency exchange rate
• Member's rank
• Dependent status
• Years of overseas duty in some cases
• Local economic conditions

Periodic Adjustments

OCOLA may adjust monthly based on:

• Currency exchange rate fluctuations
• Local cost of living changes
• Periodic survey results

This means OCOLA can vary month-to-month at the same location.

Eligibility Requirements

A Marine receives COLA when meeting these.

• Active duty status
• Stationed at qualifying location
• Specific eligibility per current DOD FMR
• Continued assignment at qualifying location

Performance Steps for COLA Processing

Step 1 - Verify Location

Verify member's duty station qualifies for COLA.

• For CONUS: Check current designated CONUS COLA list
• For Overseas: All OCONUS may have OCOLA, verify rate
• Verify duty station identified in MCTFS

Step 2 - Determine COLA Type

Identify which COLA applies.

• CONUS COLA for designated CONUS locations
• OCOLA for overseas locations

Step 3 - Calculate Rate

Use DOD COLA calculator or current published rates.

• Input duty station
• Input rank
• Input dependent status
• System calculates current COLA amount

Step 4 - Process UD/MIPS Transaction

Apply COLA via UD/MIPS.

• Specific COLA transaction code
• Effective date when member arrives at qualifying location
• Monthly recurring pay activated

Step 5 - Verify EDFR

Confirm processing within 5 business days.

• COLA posts at correct rate
• Member sees COLA on next LES

Step 6 - Annual Review

For continued COLA recipients.

• COLA rates change annually
• New rates effective specific dates
• Update member's pay record

Step 7 - OCOLA Monthly Adjustments

For OCOLA recipients.

• Monthly rate adjustments per DOD FMR
• Currency and price changes drive adjustments
• Member's LES may show OCOLA changes

When COLA Changes

COLA changes when.

• Member transfers from qualifying to non-qualifying location
• Member transfers between locations with different COLA rates
• Annual rate adjustments
• For OCOLA: Monthly currency or price adjustments
• Member separates or retires

Tax Treatment

COLA is taxable income for federal tax purposes.

• Federal income tax withholding applies
• State tax varies by state
• Specific exception: COLA for locations specifically exempted by IRS

This differs from BAH and BAS which are tax-exempt.

COLA and Other Pays

COLA coordinates with other allowances.

• BAH applies independently
• BAS applies independently
• HFP/IDP applies independently
• Each pay is separate

Common COLA Errors

These hit during PAC processing.

1. Member transferred from CONUS COLA location but COLA continues. Stop COLA retroactive to transfer date.
2. OCOLA not updated for monthly adjustments. Manual updates required for OCOLA monthly changes. Track and update.
3. Wrong rate for location. Verify current published COLA rates.
4. Annual rate change missed. January 1 typically brings new rates. Update.
5. Tax treatment wrong. COLA is taxable. Verify withholding setup.

Designated Location Changes

DOD updates COLA designation lists.

• New CONUS locations added based on cost surveys
• Existing locations removed when costs no longer above threshold
• Annual review and update
• MARADMINs and DOD instructions document changes

OCOLA Special Categories

OCOLA has specific subcategories at some locations.

High-Cost Locations

• Tokyo, Yokohama, other Japanese cities
• Seoul and other Korean cities
• Specific European high-cost cities
• Substantial OCOLA rates

Standard Overseas Locations

• Most overseas locations
• Moderate OCOLA rates

Low-Cost Overseas Locations

• Some specific locations
• Lower or no OCOLA

Audit Implications

COLA is audit-relevant.

• COLA at non-designated location creates findings
• Wrong rate creates compounding error
• Failure to update annual rate creates ongoing wrong pay
• OCOLA monthly adjustments missed create variance

PAC accuracy on COLA supports unit audit posture.

Documentation Required

For COLA actions, PAC needs.

• PCS orders showing duty station location
• Duty station COLA designation
• Annual published rates
• For OCOLA: Monthly adjustment notifications

Quality Control

Before submitting COLA transactions.

• Verify location designation current
• Verify rate matches DOD FMR
• Verify rank and dependent status accurate
• Verify effective dates correct

Coordination Touchpoints

COLA processing touches.

• DTMO: For COLA rates and designations
• Local installation pay office: For location-specific COLA
• DFAS: For pay processing
• Member's chain of command: For duty station verification

Member Counseling on COLA

Brief members on what COLA does and does not cover.

• COLA offsets cost of living, not housing (BAH covers housing)
• COLA is taxable income
• COLA changes when member transfers
• OCOLA may change monthly
• Verify each LES for COLA accuracy

Related Roles

COLA affects Marines at high-cost locations.

• Marines at qualifying locations verify COLA on LES.
• Leaders verify member COLA accuracy during reviews.
• Commanders ensure unit COLA processing accurate during PCS.