Proof of income is a document or set of documents that show the amount of money you earn or receive from different sources. It is requested by people such as a lender or a potential landlord to verify that you have a steady flow of income and thus have the ability to pay rent, or other kinds of loans.
Why is proof of income important? How do you prove your proof of income? Read on to find out.
Why Is Proof Of Income Important?
The primary necessity of proof of income to verify that you in fact have a steady source of income so that the people entitled to this information are sure that you’ll be able to hold up your end of the bargain and pay when the time comes.
For example, the most common scenario where you’ll have to show proof of income is when you’re renting an apartment. Here, proof of income becomes an important factor in filling out the rental application, which is how the landlord can verify your credibility and know that you’re not a fraudulent person.
Additionally, proof of income is a factor in determining things like your health insurance plan and the amount you receive for a personal loan.
Now here’s how to deal with showing proof of income.
A pay stub is a part of a paycheck that itemizes the details of an employee’s pay. A pay stub lists the wages earned for the pay period and year-to-date payroll, the taxes and other deductions taken out of an employee’s earnings, and the net pay (the amount the employee actually receives).
If you work a full-time or part-time job where you earn a regular paycheck, your employer will give you a pay stub each time you’re paid or it’ll at least be made available on request. But as the folks over at Mr Pay Stubs have observed you won’t have access to pay stubs if you’re self-employed. If this is the case you have other options, like using a pay stub generator.
After you file your taxes each year you get a tax return. This is a legal document that highlights all your previous year’s earnings. Because your tax documents are legal documents they’re often considered the most reliable sources of proof of income.
The difficulty is that these documents can be hard to get if you didn’t keep copies. Plus, tax returns are filed once a year so they won’t reflect any raises or new additional income.
The best tax document to keep in handy is typically Form 1040 (Last Year’s Tax Return) which is a complete document that contains all of your sources of income in one place.
Another way to deal with your proof of income is by showing your bank statements. While this is not the most desirable option available to you because it’s personal information revealing the details of where your money goes, it does give an idea of your cash flow. Especially if you’re applying for a loan the lender may want to see how much money you generally have left after deductions.
This is both an advantage and a disadvantage. Bank statements don’t always show an accurate income. For example, if you’re paid on commission, your statement will highlight income fluctuations.
It’s possible to earn income that you didn’t work for. This type of income is not always consistent but it’s still proof of a source of income even if it’s for a short period of time in lieu of finding more permanent sources of income. Here are some examples of unearned income sources:
- Annuity Statement. This is an agreement between you and an insurance provider in which you receive a fixed stream of money in exchange for a lump sum. You can request an annuity statement from your insurance company or agent.
- Tax form 1099-R, the Pension Distribution Statement is money from retirement.
- Court-Ordered Agreements. You can request a copy of court-ordered agreements like alimony and child support from the court.
- Unemployment Benefits. If you’re employed then you’re receiving temporary financial assistance from the government provided you meet certain requirements. These requirements are set by your respective state so you can contact your state’s unemployment office directly for a copy.
- Workers Compensation letter. This is compensation that provides assistance to those injured in the workplace. This includes wage replacement and compensation for medical treatment. You can get a copy of this from the insurance company or from the court that adjudicated your case.
Proof of income is vital for several aspects of your life including if you get to rent an apartment, get a loan for a car, or what kind of health insurance you’re entitled to. Knowing how to deal with it is too important to not be taken seriously.