Proof of income is what you can use for applying for loans, rent, aid, and insurance. This helps mortgage companies, landlords, and agencies to know that you can pay them on time.

Whether you’re self-employed or you work for someone else, you’ll have proof of income documents to use for different applications. This post will teach you what proof of income is, what you can use it for, how income verification is done, the different documents you can use, and the challenges you may encounter.

What is Proof of Income?

Proof of income is any document that will show your stream of income that will verify your ability to pay to landlords, mortgage companies, and government agencies. Sometimes, the lenders will ask for a proof of income letter alongside your supporting documents. Proof of income letter summarizes and verifies your employment income. It can be written by your employer, by an accountant, by you, or by a social worker depending on the situation. There are income verification templates available you or your employer could use to make this writing easier.

Proof of income is an earning statement that shows how much money has been paid to you if you are employed by a company or someone else. It provides information as to how many hours you have worked which could be in a form of a payslip or pay stub.

Why is Proof of Income Important?

Proof of income matters because without these documents, lenders will not be able to verify your ability to pay for their products or services. You may not be approved for loans, you may not be able to move houses or apartments, and you may not be able to apply for government aid and health insurance. Showing them these documents can build trust between you and the lender as you would not want to lend money to a person whom you know will not be able to pay you back.

There are different documents you can use for proof of income. Compiling, making copies of them, and setting them aside to be readily available could help speed up your process of application. It’s important to note that these documents should be the latest because you might encounter verification challenges later on if you don’t give the most recent information about your income.

How Do Companies Conduct Income Verification?

Whatever it is you’re applying for, the process is generally the same. It will involve you completing the company’s application form, the company requesting proof of income documents, and the company verifying these documents.

Completion of the application form. Step 1 involves you completing the income verification form and/or the company’s application form whether you’re applying for a mortgage, a loan, financial aid, etc. You’ll be asked your current salary in this form but the proof of income documents don’t necessarily need to be attached.

Request for Proof of Income. If you’re wondering how to show your proof of income, this next step is when the lenders will most probably ask for them. The proof of income will serve as supporting documents to your application.

Verification of Proof of Income. The final step to your application will be the company verifying the documents you have given. They will contact your employer or the IRS, if necessary. Third-party verification services can also be used by them to obtain necessary information directly

You might be asked more questions but these are generally the steps to applying with your proof of income. However, applications don’t always get approved. It’s important to note what specific documents can be used as your proof of income.

What Can Be Used as Proof of Income?

There are different proof of income documents you can use whether you work for a company, are self-employed, or are unemployed. Just make sure to use the most updated document for your applications.

For the Employed by a Company

- Pay Stubs. A pay stub or a check stub is a document provided by your employer which contains your regular or monthly income. It could also contain your hourly or daily rate, deductions, and contributions. This is probably the handiest especially if your employer regularly sends it to you every salary day.

- Copy of last year’s federal tax return. This shows the taxes to your annual earnings which include wages, salaries, bonuses, commissions, investments, tips, and some unearned income. 

- Wages and tax statement. Also called the IRS Form W-2, this provides your income from the previous year and how much tax was withheld by your employer. If you are self-employed, the equivalence of this is your 1099s.

For the Self-Employed

- Bank Statements. Bank statements can be used because they show the money coming in and out of your account. It also shows what’s normally left.

- Self-employment ledger documentation. This shows your detailed and accurate record of income and expenses as a self-employed individual.

- Signed timesheets and payroll receipts for employees. If you have employees, this provides the records of their income, the money coming out of your business.

- Quarterly or Year-to-Date (YTD) profit and loss statements. This is an income statement which reports your company’s operations from the first of January of the current year.

Unearned Income

- Social Security Benefits Letter. This can serve as your proof of retirement, disability, SSI or supplemental security income, or Medicare benefits.

- Unemployment Benefits Letter. An unemployment letter provides the name of the past employer that you worked for, for how long, the wages paid, and the number of weekly benefits and time of payment.

- Proof of inheritances in cash or property. This could include certificates, ownership forms, and letters from executors or courts.

- Court-ordered awards letter. This will include wage assignments by the court for child support payments.

- Interests and dividends income statement. This pertains to the income payments of companies or governments to bondholders and shareholders respectively.

- Royalty income statement. This contains the income you get from patents, copyrights, properties, and other resources you own.

There are a lot more income verification documents to choose from but these are generally the most common and probably the ones you can quickly access to not delay your application. However, not all applications get approved. There are income verification challenges you might encounter depending on the documents you have submitted.

Common Income Verification Challenges

Income verification challenges include not being able to provide the correct documents, not meeting the income threshold, having too much income, not having proof of income, and recently changing jobs.

- Incorrect documents. The documents you have provided might not be included in the list of accepted proof of income or it might not be the most recent. 

- Not meeting the income threshold. If you’re applying for a loan, there’s most likely a threshold before a company or a bank lends you money. This means they’ll ensure that you can pay them regularly and when due by requiring a specific amount of income for approval.

- Having too much income. Is there such a thing? This can arise as a challenge if you’re applying for aid or insurance. 

- Not having proof of income. As mentioned in the previous section, proof of income is important to lenders. However, if you do not have one, you may be able to get an asset-based agreement or get a cosigner if the lender allows.

- Recently changing jobs. A problem with consistency could arise if you recently switched jobs. Describe to the other party thoroughly why you moved to reduce the likelihood of verification issues.

How Do I Verify Proof of Income?

If you’re a lender or a company who asked for proof of income from tenants or borrowers, your work does not stop after collecting. You’ll want to ask more questions to verify or confirm the proof submitted.

You may ask if the applicant still holds the job they’ve given proof of, or if they still receive that amount of income. You can also make calls to employers or IRS for confirmation. If the proof of income is below the threshold, you could ask for a cosigner for more security.

You can also perform background checks to get the applicant’s full picture. With this, you can look up their details such as their social security number, their credit score and patterns in credit history, their employment history, and other records that can be of use.

By performing an interview and background check together with their submitted proof of income, you can make sure that you’re lending to the right applicant.

How Do I Prove my Income if I am Self-Employed?

If you are self-employed, you can provide proof of income by making your pay stubs. This is probably the easiest and the fastest method because there are online paystub generators you could use. 

A pay stub will show your profit and loss statements, keep track of your contracts and invoices, and can help file your taxes. It will contain your gross income, deductions, net income, and contributions. There are a lot of benefits to making your pay stubs as a self-employed individual and you can read about it here.

Pay Stub Generator to Show Proof of Income

Make yourself more productive by focusing on work that matters. Leave the tedious work of making your proof of income to our online generator right here at Real Check Stubs! We deliver to your email for instant downloads and printing. Different templates are also available you can use to your liking.