Proof of income is an important number to lenders, landlords,and many other entities. Your income is a factor that can determine a number of things from your health insurance plan to the amount you receive for a personal loan. It’s essential to know what your income is and how this number impacts different areas of your life.
What Is Proof of Income?
Proof of income is a document or set of documents that someone, like a lender or landlord, requests to verify your income and determine your ability to pay.
Some may ask for some form of a proof of income letter. This letter summarizes and verifies your income and employment. This letter can be written by you, an employer, an accountant, or a social worker depending on your situation. It’s important to include your basic income information in this letter to give a clear picture of your earnings. This number can include your average work week hours, yearly salary or hourly wage, and how you foresee this income will be sustained in the future (for example, if you’ve had consistent raises in the past and anticipate raises in the future).
In addition to a proof of income letter, a lender or renter can ask for supporting documents as proof. They can also ask for a range of documents in lieu of a letter. Take a look at the list below to see what documents you might be able to use as proof of income.
What Can Be Used as Proof of Income?
Depending on the lender, different documents are considered more authoritative than others. For example, some may accept a pay stub while others may need a combination of a pay stub and a copy of last year’s federal tax return. We’ve listed below what documents you may need to show proof of income. This isn’t an exhaustive list, but it gives you an idea of what documents you can use, where you can get these items, and why some documents may work better than others.Most of these documents should include:
- Your full name
- Additional identifying information (like your social security number)
- Income amount
- Employer name (when applicable)
Common Proof of Income Documents
From Your Employer
Documents from your employer can give the most up-to-date picture of your income since it takes into account any changes in your wages from the past year.
- Pay Stubs. Some lenders may require your pay stub to have your pay period and pay frequency listed to verify your income. Provide your most recent pay stub as proof of income to give a more up-to-date representation of your income.
- Proof of Income Letter. This can act as as both a verification of income and a light letter of recommendation depending on your relationship with your employer.
Copies of your most recent tax documents are sometimes considered the most reliable sources since these are legal documents. However, these documents may be a difficult to retrieve if you don’t keep copies readily available after tax season ends.
These documents are also not as accurate as a recent pay stub since taxes are only filed once a year. Any raises or additional income received since the last tax season are not reflected here, so additional documents like pay stubs or bank statements may help paint a more precise picture.
- Last Year’s Tax Return (1040). This is a complete document that contains all of your sources of income in one place. Keep a copy of this form handy since it is useful for proving income and other things.
- Wage and Tax Statement (W-2). You’ll need to provide W-2s from all employers to give an accurate snapshot of your income. You can request this document from your employer(s) if you don’t have a copy on hand.
A handful of documents that fall under this category are government issued. These are also reliable documents for lenders, but you should not solely rely on these streams of income as proof since these avenues sometimes are not always consistent. For example, unemployment benefits and workers compensation eventually end.
These documents can be helpful if you need to prove steady income for a short period of time, but keep in mind that you’ll need a more stable stream of income when these streams eventually stop.
- Social Security Proof of Income Letter. You can print this statement online at socialsecurity.gov/myaccount. Read through the Social Security Administration’s guide to see how you or a loved one can access your benefit verification letter. You can also check out our guide to SSI income limits to learn more.
- Annuity Statement. An annuity is an agreement between you and an insurance company where you receive a fixed stream of money in exchange for a lump sum. You can request an annuity statement from your insurance agent.
- Pension Distribution Statement (1099-R). Check out this guide to using tax form 1099-R to learn about all of the instances you can use this form.
- Court-Ordered Agreements. Agreements like alimony and child support fall under this category. You can request a copy of these agreements from the court.
- Unemployment Benefits. These benefits give temporary financial assistance to unemployed workers that meet certain requirements. These requirements are set by your respective state. You can contact your state’s unemployment office directly for a copy.
- Workers Compensation letter. Workers compensation provides assistance to those injured in the workplace, including wage replacement and compensation for medical treatment. You can get a copy of this from the insurance company or the court that handled your case.
Proof of Income for Self Employed Individuals
Proving income while self-employed can take a little extra effort if you don’t keep yourself organized. Take a look at the documents below to see what you can use to prove your income when you are self-employed.
- Wage and Tax Statement for Self Employed (1099). These forms prove your wages and taxes as a self employed individual. It’s one of the most reliable proofs of income you can produce since it is a legal document.
- Profit and Loss Statement or Ledger Documentation. This summary of your costs, expenses, and revenues can demonstrate your income to a lender.
- Bank Statements. A bank statement can prove a stable flow of income if you have a history of steady deposits. It’s best to keep a seperate account for business expenses so you don’t confuse any transactions with your personal expenses.
Proof of Income for Apartment Dwellers
Renters and landlords normally ask for some form of a proof of income to verify your ability to pay. At the very least, you should use documents that prove steady income for the duration of your lease. For example, a combination of pay stubs and bank statements can possibly suffice if your landlord accepts these documents. Here are a few documents your landlord may ask you to produce to prove proof of income.
- Pay Stubs. Like we mentioned earlier, this can provide the most accurate snapshot of your wages.
- Proof of Income Letter. A letter like this is especially useful to you since it can give your landlord additional insight into your background.
- Last Year’s Tax Return (1040). This comprehensive document can give a full picture of your income from the last year. It can make it easier for your landlord since all of your income streams of income are recorded in one document.
Your landlord may not accept documents for short-term streams of income since the temporary cash flow may leave you unable to pay later down the line. Double-check with your landlord when you’re preparing your rental application to make sure you have the right documents and that you meet the income requirement.
Above all else, it’s important to keep copies of important documents so you can easily produce them when someone requests proof of income. Lenders and other entities often like to check specifically for verified income. This income is the amount reported to the IRS and found in tax documents like your 1040 form. Like we mentioned earlier, some feel more comfortable with this number since these are easily verifiable and usually come from legal documents.
Verified income is one of the three key numbers that matter for your financial health. This number along with your credit score and debt-to-income ratio are the essential to seeing where you stand financially. It’s important to know what those numbers are so you know where your finances stand so you can make the best choice for big decisions like health