The Federal Government pays nonforeign area cost-of-living allowances (COLAs) based on differences in living costs between the allowance areas and the Washington, DC, area. Section 5941 of title 5, United States Code, limits COLAs to a maximum of 25 percent of basic pay. COLAs are exempt from Federal income tax but may be subject to State and local taxes. COLAs do not count for Federal retirement purposes.

The COLA rates for 2010 and 2011 were set under the provisions of the Non-Foreign Area Retirement Equity Assurance Act of 2009 to reflect the phase-in of locality pay in the non-foreign areas.

COLA rates for 2009-2011 are shown in the table below. ¹

NONFOREIGN AREA COLA RATES

Geographic Coverage		2009(%)	2010(%)	2011(%)
Alaska	City of Anchorage and 80-kilometer (50-mile) radius by road	23	19.03	10.56
	City of Fairbanks and 80-kilometer (50-mile) radius by road	23	19.03	10.56
	City of Juneau and 80-kilometer (50-mile) radius by road	23	19.03	10.56
	Rest of Alaska	25	20.94	12.28
Hawaii	City and County of Honolulu	25	20.94	16.07
	County of Hawaii	18	14.26	9.76
	County of Kauai	25	20.94	16.07
	County of Maui and County of Kalawao	25	20.94	16.07
Territory of Guam and Commonwealth of the Northern Mariana Islands		25	20.94	17.23
Commonwealth of Puerto Rico		14	10.44	7.18
U.S. Virgin Islands		25	20.94	17.23

¹ The 2010 COLA rates are also shown in the Compensation Policy Memorandum posted at http://www.chcoc.gov/Transmittals/TransmittalDetails.aspx?TransmittalID=2732, and the 2011 COLA rates are also shown in the Compensation Policy Memorandum posted at http://www.chcoc.gov/Transmittals/TransmittalDetails.aspx?TransmittalID=3300.