10 Methods Landlords Can Use to Verify Proof of Income

November 20th, 2020
10 Methods Landlords Can Use to Verify Proof of Income

There aren’t a lot of scenarios where you can ask someone about their personal finances without being intrusive. Fortunately, for landlords, asking potential tenants to verify their income is a standard piece of the rental application process.

The screening process can be arduous at times, but landlords need to verify that their tenants can afford the rent and fees they mutually agree to each month. To make it simpler, below are 10 ways to verify proof of income as well as a printable proof of income letter.

What is Proof of Income?

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Proof of income is a document or set of documents that a landlord will request to confirm that the potential renter will be able to afford the monthly charged rent over the agreed-upon time frame.

10 Ways to Check an Applicant’s Proof of Income

Below are 10 ways to verify a potential renter’s proof of income. As a landlord, it is ideal to use a combination of these options to get a large overview of finances, but also a glimpse into the most recent income.

1. W-2 Tax Form

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A W-2 tax form shows the applicant’s income from the previous tax year. W-2s are for when an employer withholds payroll taxes from their employees’ earnings. They should include any payments of $600 or more from that year.

2. IRS 1040 Tax Return

A tax return is filed with the IRS or local tax collection agency. It gives a snapshot of an applicant’s wages and gross income from the previous year. There are two main tax return forms, 1040 or 1099 MISC. A 1040 is a typical tax return document if someone is an employee at a corporation or firm.

Pros Cons
  • Landlords can verify previous addresses, social security numbers, and wages
  • If the tax form was not correctly completed, it might disqualify candidates that would have otherwise been approved

3. 1099 Tax Form

A 1099 MISC is the other main tax form. It is used by independent contractors or contract workers who cover their own employment taxes. Those who are full-time employees under a corporation, but have a secondary-contract job might also file a 1099 along with their 1040.

Pros Cons
  • 1099s should help account for supplemental income when calculating if the rent can be afforded.
  • Contract work is not always consistent and 1099s can make it difficult to gauge annual income

4. Bank Statements

Bank statements are official summaries of someone’s financial transactions, usually occurring each month. They are informative to the landlord because they display each deposit, withdrawal, or transaction — giving a comprehensive picture as to how someone spends their money.

Pros Cons
  • Track each deposit, withdrawal, or transaction made
  • A landlord can request a range e.g., the most recent month or past several months
  • Inspect post-taxed income and spending
  • Bank statements can be fairly intrusive and discomforting
  • They can turn away qualified candidates
  • Not as accurate, if paid on commission or contract

5. Social Security Statement

Social Security benefits statements from the Social Security Administration (SSA) are for those who receive payments from the government as either their main source or supplementary income due to continued employment or disability.

Pros Cons
  • Government documents are easy to verify and difficult to imitate
  • Income and access can fluctuate due to laws passed by Congress

6. Pay Stubs

Pay stubs, sometimes referred to as paychecks or a payslip, are received by an employee usually bi-monthly or once every two weeks. The best practice is to request and check pay stubs from the last quarter (the previous three months).

ways to verify a pay stub

Pros Cons
  • Pay stubs are easy to verify recent payments
  • Quickly accessible by most applicants
  • Pay Stubs are easier to forge than other documents
  • If concerned, a landlord should verify with the applicant’s employer

7. Unemployment Statement

An unemployment statement is documentation from either the state or federal government proving income up to a certain point in time due to job loss.

Pros Cons
  • From the government, which makes it difficult to forge
  • Helps those who are struggling financially or in unfortunate circumstances
  • Unemployment checks usually have a time stamp on them and will end at some point

8. Severance Statement

A person will receive a severance statement when they have been terminated from a job. A severance statement could serve the possible tenant well if they are applying for a short-term lease.

Pros Cons
  • Usually a large payment upfront or over several months
  • Due to severance, there is a time limit, and can be risky if the applicant cannot find additional income

9. Workers’ Compensation Statement

A worker’s comp statement gives notice that the applying tenant is receiving compensation from a current or previous employer due to being injured on the job. Worker comps are awarded by the employer or a judicial court.

Pros Cons
  • Steady payment over time
  • Easily verifiable
  • There is a shelf life to the compensation and they will end at some point.

10. Letter from Employer

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A letter from a possible tenant’s employer can verify their employment status and can confirm income statements on the application.

Pros Cons
  • Get employer information quickly and can call to confirm employment
  • Not as invasive as other paperwork
  • Can be easily fabricated
  • The employer might not be willing to share detailed information about employee

Proof of Income Letter [Template]

Below is a downloadable template any landlord or agent can print out and use in their rental application process.

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Proof of Income FAQ’s

  • Can an unemployed applicant show proof of income?

Unemployment benefits will prove monthly income over an extended period of time. Note, look for when the benefits will dry up by scanning for the allocated amount or end of benefit date. Also know that if someone is retired or has a disability, they can show proof of income via IRS tax forms.

  • Should I rent to someone who can’t show proof of income?

Renting an apartment or space without proof of income isn’t common practice, but some ways to qualify applicants is by having them show credit scores and savings, or having them pay more money up front and the security deposit.

  • How to determine if someone can or should afford rent?

The general rule is for renters to spend 30% of their net income on rent. The 30% rule is how most landlords and leasing offices calculate if someone can afford rent. However, if an applicant is in a lower income bracket, making around $30,000, it is economically advantageous for them to spend closer to 20% on rent. The need to spend less on rent is due to your other necessary expenses (groceries, student loans, car payments, etc.) taking more out of their monthly income.

  • How to successfully prove income if the applicant is paid in cash?

If a candidate’s main income comes from cash and they are applying for a lease, the best option is to collect as much information as you can about their previous earnings to create a paper trail. You should ask them to collect and present invoices, tax statements, letters from agencies or contractors who paid them, and several previous bank statements.

As a landlord, it is essential for your business to make sure that the applying tenants can afford rent — it will save you time and a headache.

Using a combination of the above-listed options is a great way to obtain proof of income. A more automated and efficient way is to also use the comprehensive tenant screening process and the rental applications system. Both allow you as a real estate agent or property manager to accurately verify applicants and close leases faster.