Whether you’re attempting to get a mortgage, auto loan, a new apartment, or a public welfare benefit, you often need to prove you earn the correct amount of money to qualify.
In the case of a mortgage, loan, or apartment, the company must verify you earn enough money to afford the monthly payments. When applying for public benefits, like SNAP, WIC, or welfare, the organization uses your income to verify you indeed need the benefit and qualify for it before approving you.
How to Show Proof of Income
In all instances, proving your income involves collecting key documents that outline all your income sources. Below, we’ll cover how to show proof of income in a wide range of situations.
Proof of Income as a Salaried or Hourly Employee
When you’re a full-time salaried or an hourly employee — also called a W-2 employee — you can show proof of income in several simple ways.
The easiest of the ways is with pay stubs — the statements you get with each paycheck that show your gross wages, deductions, and net pay. Depending on the company requesting the proof of income, you may need more than one pay stub, especially if you’re an hourly worker whose paycheck varies each week.
If you need to show proof of income over an entire year, you can show your W-2 tax form from the previous year. Your employer sends this form around tax time every year, and it outlines your total wages for the year, deductions, taxes paid, and more.
In some cases, your previous year’s federal tax returns are an acceptable substitute for W-2 forms.
Some companies will also accept an employment verification letter or proof of income letter from your employer. This letter should state your position within the company, the date you started with the company, and your yearly salary or wage and anticipated number of hours per week.
Proof of Income as a Commissioned Employee
If commission makes up a significant portion of your income — typically 25% or more — you must show a more in-depth proof of income for some loans.
Fannie Mae guidelines recommend two years of tax returns that show you earning commission. The lender averages out the two years of commission to determine your salary for qualification purposes. However, Fannie Mae guidelines allow as few as 12 months of tax returns as proof of income in some circumstances where commission is involved.
Keep in mind that some lenders may also require your W-2 tax forms as verification that the numbers on your tax returns are correct.
Proof of Income as a Tipped Employee
As a tipped employee, it can be a little trickier to prove your income.
According to IRS requirements, tipped employees must report their tips each month by the 10th day of the following month. It’s this reporting that helps you prove your income.
In many restaurants, the point-of-sale (POS) system has an interface for claiming your cash tips, and it automatically claims all credit and debit card tips. So, every night when you clock out, you can enter your tips and remain in compliance with IRS rules.
If you work in a company with this system, your claimed tips will appear on your pay stubs, and you can use these stubs just as any hourly employee would. However, the company requesting income verification may require several months’ worth of pay stubs to establish a consistent average wage.
If your company doesn’t offer this type of technology, you must submit IRS Form 4070 to your employer by the 10th of each month. Your employer adds those tips to your next pay stub. With these tips reported, you can take your pay stubs to the company requesting verification. Again, the company may require multiple months’ worth of statements to show a consistent average income.
Some companies may also accept cash deposits in your bank as proof of tipped income. To prove your income in this case, deposit cash tips in your bank account and bring the requesting company several months’ worth of bank statements showing these deposits.
Proof of Income for Self-Employed Individuals
Being self-employed or a freelancer can be liberating, but the paperwork required to show proof of income can become overwhelming. Some lenders are less strict on self-employment income than others, but it’s best to maintain all the proof of income documents just in case.
Nearly every lender will want to see your last two years of income tax returns, although some may want to see three or four years’ worth. They will use these returns to calculate your average yearly profit, which will become your yearly income.
Some lenders will also ask to see your 1099-MISC tax documents to match them up to the claims on your federal tax returns.
Stricter lenders will also ask for a year-to-date profit-and-loss statement (P&L statement) showing all your income and expenses for the current year.
If a certified accountant creates and signs your P&L statement, this is usually all the lender needs. However, if you create your P&L statement yourself, the lender will likely request three to six months of business bank statements to verify the income you’re claiming.
Finally, some lenders also require business relationship verification letters from your clients. These letters should state the client does business with you and intends to maintain their business relationship with you for the foreseeable future.
Proof of Income on a Rental Property
If you use a rental property as a source of income, there are multiple ways you can prove this income.
The most foolproof ways to document rental income are via the lease agreement you have with the tenant or a rental statement from the person or company managing the property. Depending on what you’re trying to qualify for, the company requesting the income verification may require multiple years’ worth of these documents to prove the income is consistent.
Some companies may require your tax returns along with these documents to validate your income claims.
If the home is vacant, you can get a valuation letter from the property management company or the realtor you’re using to list the property. This letter will state the anticipated monthly rent payments based on location, property features, and market conditions.
While the statement letter may work in certain cases, like renting an apartment or qualifying for certain public benefits, lenders may not accept it.
Proof of Alimony or Child Support Income
Alimony, which is the amount a higher-earning ex-spouse pays a lower-earning ex-spouse following a divorce, counts as income for the ex-spouse receiving it. Child support is similar to alimony and also counts as income, but it’s generally for a longer period than alimony.
If you receive alimony or child support and want to use it to qualify for a loan, you must prove your ex-spouse is and will continue paying the correct amount.
To prove these payments occur, make copies of every check you received from your ex-spouse for at least the past six months. Print bank statements for the same period showing these checks going into your bank account. You also need court documents proving your ex-spouse will continue making these payments for a specific period — the period may vary by lender.
Proof of Social Security Income
If you collect Social Security due to an injury, illness, retirement, or any other reason, you must prove this income to lenders too. Fortunately, this is relatively simple via the Social Security Administration’s online portal.
Log into your my Social Security account online and click on “Replacement Documents,” then click “get a Benefits Verification Letter.” From there, you can view, print, and save your Social Security benefits statement, which outlines your Social Security income.
If you don’t have a my Social Security account yet, you can sign up for one online, then print out your letter.
Proof of Income From a Retirement Account
If you’re retired and draw an income from a 401(k), IRA, or any other retirement account, you must prove this income to a lender, landlord, or public benefits office.
You can prove this income with retirement account statements that show consistent withdrawals for the period outlined by the company or organization requesting the verification.
Many lenders also need you to prove this income will continue for a specific period of time. An income statement from an accountant or financial advisor stating their analysis shows you will have sufficient income may be adequate proof.
Keep in mind that many lenders only consider 70% of your retirement account’s value because they contain volatile assets that can lose their value.
Proof of Income From a Pension
If you receive a pension and need to prove your income from it, you need an income verification letter or a pension distribution statement.
Log onto your pension provider’s website and find an area named “income verification” or something similar. From there, you can download or print the statement or letter and present it to the company requesting it.
If you can’t find the information online, call your pension provider and request an income verification letter or pension distribution statement.
Final Word
Whether you’re applying for a loan or for public benefits, showing proof of income is part of the process. With numerous types of income available, ranging from a simple full-time salary to complex self-employment income, it’s easy to get a little overwhelmed by this process.
However, with the right information and a full set of income verification requirements from the requesting organization, you can piece together the required paper trail to prove your income.
Always remember that each company may have slightly different requirements for verifying your income, so it’s best to proactively keep all your income records just in case.
