Do you need to show proof of income? Not sure which document is your best bet?
Well, you’re in the right place. We understand that it can quickly get overwhelming with the variety of proof of income documentation, so we decided to make it simple.
In this article, we will cover the most common and useful examples of documentation that can be used for proof of income.
So if that interests you, keep reading to learn more.
What Is Proof of Income?
In premise, proof of income is a type of document/s that a party can request from you, in order to verify your level of income and determine your capacity for payment.
Most will ask for proof in the form of an income letter. The letter itself can be written by you, a social worker, an accountant, a lawyer, an employer, so on and so forth – depending on your situation.
In this document, one should include a comprehensive overview of income in a very clear fashion. The information itself can cover work hours, hourly wages, annual salaries, income sustainability, raises, etc. However, a requesting party might ask for other documents to verify the letter. These documents will be listed a little later in the article.
But now, it’s important to understand that various documents will be of greater value than the others. For instance, a paystub might not be authoritative, like a paystub + a copy of your federal tax return. Therefore, the best proof of income is a combination of documentation, which supports each other for a greater picture.
Most of these papers will include your full name, identification information, income numbers, dates, employer/company name (optional).
Which Documents Can Be Used for Proof of Income?
As promised, the documents that can be used for proof of income are plentiful, so let’s get into it.
Let’s start with the employer documentation, as it may be the most up-to-date representation of your income because it covers all wage changes for the entire year.
A party might request you to present a pay stub for a recent pay period, or the applicable pay frequency you mention. In this case, provide the most recent stub, and you will be fine.
In some cases, you can’t get a paystub. So you can make paystubs on your own.
As mentioned prior, this letter itself can be used as verification for your income, but it can also be a financial recommendation letter from your employer.
Thus, the letter could cover your accountability on the job, which would show that you will have a salary for a long while. Or it can just present your income level from the viewpoint of your employer.
Now out of all the most reliable proof of income, tax documentation seems to take the first place.
This type of documentation can be hard to retrieve if you don’t already keep copies after the end of the tax season. And another thing to consider is the fact that these documents might not be as accurate as a pay stub, as they are only filed once a year.
Any additional income or raise is not reflected in the previous tax season, so in that case, other supporting documentation will be needed to create a more accurate picture.
Last Year Return
1040 is a complete document that covers all of your sources of income in a single format. If you can get access to this form, it will be very useful for showing proof of income. However, that can be difficult for some people.
W-2 is a document that is provisioned from all of your employers and can be compiled to provide a full image of your income. If this document is not in your possession, you can get a copy from your employer. This option is not applicable to self-employed people.
Now some documents come under the category of government issues, which means they are very reliable to the eyes of a requesting party. However, one should not rely on these, as the income streams covered are not very consistent.
For instance, workers comp and unemployment benefits don’t last forever. So if you still need to show proof of income but only for a short period of time, this is your best bet. Although, if you need to prove a stable income for a longer time, this might not be the solution.
A Social Security proof of income letter can be printed on the official website of the government. You can read through the guide to get a better sense of how to access this letter.
A 1099-R, Pension Distribution Statement can be used in a variety of instances, but not applicable to all.
An annuity statement is a type of agreement between you and an insurance company, in which you receive a fixed income in exchange for lump sums. This document can be retrieved from your insurance agent.
Unemployment benefits provide financial assistance to workers that meet unemployment requirements. The requirements are set by the state, and if you need one you can get a copy from the office where you meet with your social worker.
Workers’ compensation gives financial assistance to those who have been injured at work. It covers medical treatment, wage replacement, and much more. A copy of a letter from the institution can be received from the insurance company or the court handling your case.
A court-ordered agreement is along the lines of alimonies, child support fall, and other cases of that nature. A copy of such an agreement can be requested from the court.
Self-employed people have a harder time providing proof of income, especially if they are not organized. Nonetheless, some documents can still be used.
A 1099, Wage and Tax Statement for Self-Employed can prove wages, and taxes paid by the individual. It’s a reliable document, as it is a legally-binding statement.
Your bank statements can be used to provide proof of stable income flow, especially if that’s where you make regular deposits. Nonetheless, it’s best to have a separate account for business expenses, so a requesting party does not confuse your personal expenses with business transactions.
A ledger can provide a summary of your business expenses, profits, costs, revenues. Thus, providing a detailed outlook on your self-employed financial enterprise.
Proof of Income Done Right
Now that you know about all of the common ways of providing proof of income, you are well on your way to employing the information for whatever purpose necessary.
Proof of income can be used for loans, rentals, mortgages, so on and so forth – whatever purpose you have in mind, as long as you provide a reliable document listed in this article, your likelihood of securing the transaction will be grand.
If you’re interested in other business articles, click on the category at the top of the page, and get to reading.