Anyone who signs a contract with any branch of the military is guaranteed base pay, according to rank and tenure as outlined by the Department of Defense. Uniformed service members are also entitled to other forms of compensation, such as medical care and housing. In many cases, housing is provided on base for service members, with costs absorbed by the military. When military housing isn't available, troops receive a stipend, known as the basic allowance, or BAH, to cover housing costs.
The Department of Defense provides funds to all troops who live off-base to pay for rental costs. Troops receive the amount, which is tax-exempt income, directly in their paychecks and individually apply it to their housing costs. BAH amounts are paid regardless of the rent rate in the housing chosen. Amounts left over after rent is paid may be spent in any way, and troops who live in housing whose rent exceeds their BAH amount must meet the difference from their base pay.
Determining Factors for Allowance
The Defense Finance and Accounting Service sets BAH rates on three factors. The first is the cost of standard living accommodations in the area that immediately surrounds the base in which troops are stationed. Areas with high costs of living, such as Massachusetts, receive a higher BAH than those with low costs of living, like Michigan. BAH stipends also vary by rank, with higher pay grades receiving larger stipends. Troops who must support dependents also receive more than those without, as family housing is typically more expensive than single-tenant accommodations.
Basis for Stipend
At the end of each year, the Defense Department releases new BAH figures based upon surveys of the real estate market in the area. The department investigates rent costs for rank-related accommodations. Enlisted troops' rates are based on apartments, junior officers are expected to live in townhomes and senior officers may live in single-family dwellings. The locality's BAH rate is set as the median price for necessary accommodations for the area.
Individual Rate Protection
Because BAH rates are linked to rental costs, they may decrease in an area if the cost of living decreases. Although troops receive an increase in their BAH rates each year if the rate increases, a policy known as individual rate protection establishes that a service member's BAH rate won't decrease with market fluctuations. Service members who relocate to the area receive the lower BAH rate for their rank and dependency status, but those who remain in the area continue to draw the highest BAH rate they were entitled to since moving there.
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