The LQA is provided to eligible employees for leased quarters in lieu of Government provided housing and is intended to cover the average cost of rent, utilities and other allowable expenses. A maximum LQA is established for each post abroad based on the employee’s grade, quarter's group and family size. Reimbursement of LQA expenses will not exceed the authorized annual cost of rent and utilities or the maximum rate set by the Department of State, whichever is the lesser amount. LQA is non taxable.
When quarters occupied by an employee are owned by the employee, or the spouse, or both, an amount of up to 10 percent of the original purchase price (converted to U.S. dollars at the original exchange rate ) of such quarters shall be considered the annual rate of the employee's estimated expenses for rent. Only the expenses for heat, light, fuel, (including gas and electricity), water, garbage and trash disposal and in rare cases land rent, may be added to determine the employee's quarters allowance up to the maximum authorized. The amount of the rental portion of the allowance (up to 10 percent of the original purchase price) is limited to a period not to exceed ten years at which time the employee will be entitled only to utility expenses, garbage and trash disposal, plus land rent if applicable.
LQA payment is reflected bi-weekly on the employee's Leave and Earnings Statement as nontaxable income. LQA is computed by dividing the authorized annual expenses by 365 days (366 in a leap year) to obtain a daily rate. The daily rate is then multiplied by 14 to obtain the bi-weekly rate. The Defense Finance and Accounting Service (DFAS) makes payments to employees in US dollars, using the authorized foreign currency expenses and then converting the amount to US dollars using an exchange rate provided to their office. DFAS automatically adjusts LQA payments each pay period when there are changes in Department of State maximum rates or foreign currency conversion rates. For personally owned quarters, the rental portion (10 percent of the purchase price) of the LQA is converted to US dollars using the exchange rate that was in effect on the date of purchase. Therefore, the biweekly amounts for the rental portion will not normally fluctuate unless there is a change to the maximum rate authorized.
Employees are responsible for reporting any changes that may affect their allowance authorization. Below are some examples that affect an employee's allowances and should be reported by submitting an SF-1190 through DAPS as soon as possible after the event occurs to avoid any under/overpayments.
For further information on living quarters allowance, go to Section 130 of the DSSR.