In What Situations Will I Have to Provide Proof of Income?

In What Situations Will I Have to Provide Proof of Income?

Daniel Hall 17/05/2021 4
In What Situations Will I Have to Provide Proof of Income?

Today's American millennial only has about a net worth of $8,000.

This means that for a lot of life's milestones, they have to either postpone them to save up or borrow money to make them happen.

Does the latter sound like you? Then you may have been looking at several types of loans to fund whatever your dream is. And you most likely have to submit proof of income to secure those loans.

However, that's just one scenario where you'd need to submit evidence of income. Here are some other possible situations; plus, we discuss how you can submit the relevant documents for success.

SCENARIOS WHERE YOU NEED PROOF OF INCOME DOCUMENTS 

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First of all, what is proof of income? It sounds like a very simple question, but you'd be surprised at what the answer can be.

At a very basic level, it can be a copy of your last paycheck. But it can also be a letter from your employer or accountant, attesting to the fact that you do draw a wage and the exact amount.

Now that you know what proof of income is, here are some scenarios where you need proof of income.

1. Loans

As we mentioned earlier, you'll need to show a bank or lender you have income before they feel comfortable lending you money. After all, if you don't have a steady stream of income, you may just leave the loan unpaid.

Considering loans can be quite sizable, it should be understandable that lenders want to vet who they give their money out to, as these debts can take several years to repay.

The types of loans you can take out include personal and auto loans. Personal loans can be used to fund whatever you need in life, while auto loans are specific to purchasing a vehicle.

2. Apartment Rentals

Landlords want to see that you can consistently pay for the apartment they're renting out to you. Most have some kind of income requirement, such as 4 times the monthly rental amount.

Of course, to verify that you actually make over that amount, they'll need proof. Most will require several weeks' worth of proof to ensure you've actually been employed for a long period of time.

3. Mortgage

If you're trying to buy a house and need some financial assistance with a mortgage, then this is similar to the loan situation we posed above.

Mortgages are typically large loans that must be repaid over decades. Lenders need to be very careful about who they approve the mortgages to; if the borrower can't pay back the loan, not only do they lose out on money, but they also have to deal with the legal system when it comes to mortgage defaults and the home foreclosure process.

4. Taxes

Every year, you have to file income taxes. When you have proof of income (such as your paystub), this gives you something to compare with your W2 to ensure that everything is reported correctly. 

HOW TO SHOW PROOF OF INCOME IN THE UNITED STATES

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As you may have guessed by now, a good way to show proof of income is to show your pay stubs from your employer. So make sure you don't throw them out before 1 year is up.

But what if you don't have any recent ones or don't work a conventional job (for instance, you're a freelancer)?

Here are some other ways you can show proof of income. For the purposes of this article, we'll assume you're a freelancer.

1. Bank Statements

Your clients are most likely making regular deposits into your bank account as payment for your services. So in a way, your bank statements will serve as you "paystub."

2. Tax Form 1099

For anyone who earns over $400 a year as a freelancer, they must file Form 1099. This proof of income form will show all the income you've generated in that year. In addition, it'll show the taxes you've paid on that money.

3. W2

The W2 is similar to Form 1099 except it's generated by employers for their employees. This document will show the worker's total wages earned, as well as the amount of taxes that were withheld each paycheck.

4. Self-Generated Paystub

It's illegal to fake a paystub to lie to others, such as lenders for a loan. However, it is not illegal to generate a paystub on your own if you need it to verify your income when you don't get one from an employer.

Do note that this should only be used as supporting evidence for the other methods listed in this article. Most lenders and landlords won't accept a self-generated paystub on its own as evidence of income.

5. Previous Year's Tax Return

If you're not currently employed or don't have the proper documents to show your income from this year, you can always use the previous year's tax return as proof of income. 

HAVE EVIDENCE OF INCOME READY

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Now you know what potential situations may arise where your proof of income is needed. In addition, we've also shown you how to have evidence of income ready.

With everything you've learned from this article, you're now ready for any scenario where you need to have these documents. By being prepared, you may be able to snag a once in a lifetime opportunity, such as your dream house or vehicle.

So don't let these opportunities pass you by. Make sure you have your documents ready to go!

Do you need to generate a paystub as proof of income? Then do so now with an easy online paystub generator.

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  • Ross Cummins

    You can't have a foreign visa without a proof of income.

  • Jamie Nixon

    I wanna take a mortgage, I better keep all my taxation records clean.

  • Scott McGeachie

    Paystub is essential to justify a source of income. Thanks for the explanation.

  • John Wilson

    Well explained

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Daniel Hall

Business Expert

Daniel Hall is an experienced digital marketer, author and world traveller. He spends a lot of his free time flipping through books and learning about a plethora of topics.

 

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