Often landlords, lenders, and other entities require you to submit proof of income documents. When you apply for a personal loan or a health insurance plan, proof of income plays a pivotal role. It decides your ability to pay.
Some lenders may need a proof of income letter written by you, a social worker, an accountant, or an employer. It’s important to ensure that the information included in it should form a comprehensive picture of your earnings.
Let’s understand the concept in detail:
What is Proof of Income?
Proof of income document typically includes hourly wage, yearly salary, average weekly work hours, salary raises in the past, and anticipated raises. You may also need to submit a few supporting documents to your renter or lender.
Listed below are proof of income documents that hold authority:
- Federal tax return (often included in pay stub)
- Social security number and other details
This isn’t an exhaustive list. These documents should have information like income amount, name, date, and employer name (if applicable).
How to Show Your Proof of Income?
Depending on which documents lenders consider more authoritative over others, they will most commonly ask for a pay stub to determine your ability to pay.
It is a commonly used proof of income document that contains details like:
- Deductions: These include meal allowance, contributions, and taxes. They are indicated in two places in pay stubs, year-to-date deductions, and current deductions.
- Taxes: They are also listed as deductions on pay stubs and include state income tax, federal income tax, social security, and Medicare.
- Contributions: This is an amount deducted from gross wages towards employee stock purchase plan (ESPP) or other contributions.
- Gross wages: Full amount payable including the deductions
Other details include rates paid, hours worked, net wages, dates covered, and employee details.
Self-Employed Proof of Income
Proving income while self-employed takes more effort and organization. Working on your own terms, enjoying a flexible schedule, and collaborating with multiple clients is what drives freelancers and other independent contractors.
But that also makes keeping track of payments a bit challenging. Not having proof of income ceases that freedom as it inhibits your ability to obtain insurance or a loan. Hence, we have laid out three easy steps to make the process less daunting for you.
Freelancers and independent contractors can use the following documents to prove their income:
- Bank statements: If you receive steady deposits, bank statements can be used to prove your income. Freelancers and independent contractors should keep their personal and business bank accounts separate. This way it’s easy to keep track of your business transactions and present them in proof of income documents.
- Profit and loss statement: This is a summary of your revenues, expenses, and costs that can be used to demonstrate your income.
- Tax statement: Self-employed individuals can use these forms as legal, reliable proof of income documents and present them to a lender.
Proof of income is needed for a variety of reasons, and it’s never been easier to get a paystub which is a proof of income document. Use our secure, simple, and fast Paystub Generator to create custom pay stubs within minutes!