Landlords must request and meticulously review proof of income documents from each potential tenant to determine if they can afford to pay rent and if they’re committing fraud with forged documents. Pay stubs, tax returns, bank statements, and a letter of employment are the most common and best proofs of income. However, depending on an applicant’s employment status, supplemental forms like Social Security statements or profit and loss statements can provide proof of earnings.
While landlords can manually verify income, you can also use a tenant screening service like MyRental to assist you. Set up your rental application through MyRental and choose the income verification documents you’d like each applicant to upload. Then, MyRental will evaluate each application and document to let you know if they’re a viable candidate. Get 20% off by signing up for MyRental today.
Let’s review the 10 most useful proof of income documents, what to do if tenants can’t prove their income, and tips for spotting fakes:
Usage by Landlords
Most Common Verification Documents
Self-employed business owners, freelancers, and contracted workers
Reviewing transactions to corroborate with other documents
Letter of Employment
Use with pay stubs from W-2 employees
Supplemental Verification Documents
Newly employed W-2 individuals
Profit & Loss (P&L) Statement
Self-employed business owners
Certified Public Accountant (CPA) Letter
Self-employed individuals or freelancers
Social Security Benefits Statements
Proof of retirement or disability income
Income payments from third parties
Landlord Reference Letter
Applicants with previous rental history
1. Pay Stubs
Pay stubs are the most commonly used form to prove income for tenants. Also known as a check stub, pay stubs are a part of the paycheck that lists the details of an employee’s pay as well as deductions for taxes, health insurance, Social Security, etc. Currently, 41 states require employers to deliver pay stubs electronically or physically to each employee, so tenants will likely be able to provide these documents.
How to Verify Income From a Pay Stub
Landlords should request the two most recent pay stubs from each potential tenant as part of the rental application and screening process. While each pay stub may look different, they all should have several important pieces of information that a landlord can use to evaluate the tenant:
- Applicant name and address
- Employer name and address
- Year-to-date (YTD) gross earnings
- Gross income for pay period
- Pay schedule/period
The tenant and employer’s name and address should be checked against the information they included on the application. Also, landlords can call and speak with the employer to confirm this information, particularly to verify that the tenant is currently employed at this location.
To verify the income, landlords should consider the income per pay period and pay schedule. Pay schedules, or pay periods, differ per company, which means the number of paychecks received per year will differ. The most common are:
- Weekly: 52 paychecks per year
- Bi-weekly: 26 paychecks per year
- Twice per month: 24 paychecks per year
- Monthly: 12 paychecks per year
Weekly and monthly paychecks are the easiest to spot. On the other hand, bi-weekly and twice per month can be tricky. An effective way to determine the difference is to see if the tenant is paid on two set days per month, like the 15th and 30th, or uneven days like the example above on the 7th. If it is two set days, they are likely paid twice a month and receive 24 paychecks. If the intervals are on uneven days, they are bi-weekly and receive 26 paychecks per year.
To see how much a prospective tenant makes in a year, multiply the income per pay period by the number of paychecks per year. Based on the example above, multiply $800 per pay cycle by 26 checks to get a yearly income of $20,800. Divide this number by 12 to know their gross monthly income (in this example, it would be $1,733 per month). This number should be greater than or equal to the amount you’ve determined as your tenant income qualifier for the tenant to afford your rental property.
If you haven’t decided upon the tenant income qualifier for your rental property, check out our article How to Screen Tenants for a Rental Property in 6 Steps and use the calculator under step 3.
2. Tax Returns
Tax returns, also known as 1040s, can be a supporting document for W-2 employees or a primary document for self-employed applicants. They are particularly helpful for self-employed individuals because people who are self-employed do not give themselves pay stubs, so tax returns therefore document their income instead.
Landlords should ask for the past two years’ worth of tax returns to verify income and continued income over time. The applicant can get the copy they filed directly from the IRS, their accountant, or download it online. Some applicants use tax preparation software and can access digital files to print, email, or upload a PDF version of their tax return.
Did you know?
Freelancers and other contract workers or full-time employees who receive bonuses or have secondary contract jobs use an additional tax form called a 1099-MISC. This form accounts for miscellaneous supplemental income that can help to pay for a rental property.
How to Verify Income From Tax Returns
Even though pay stubs will give landlords information about income, the tax return will confirm those numbers, shed further light on additional sources of income, and show debts like alimony, student loan debt, other owned properties, and so on.
Landlords cannot use this additional information as a means to discriminate against potential tenants, but as a way to determine the debt-to-income ratio of their tenant and adjusted income. For example, someone may be earning $200,000 a year, but have to pay $150,000 in alimony, which makes their actual income $50,000. This will be the difference in whether or not they can afford the apartment.
Important elements to look at when reviewing a tax return are:
- Applicant name and address
- Gross income
- Adjusted gross income
- Date of tax return
The landlord can look at the applicant’s name and address to verify that they match what’s listed on their rental application. Landlords can then look at the wages and their adjusted gross income to verify that a prospective tenant can afford the rent.
Take the gross income, divide by 12 months to get monthly income, and divide by 33% to determine one-third of their income to cover housing expenses. Also, if the adjusted gross income is significantly different than the gross income, landlords should use the same equation to calculate their income.
Tax returns can be difficult to read for those who are unfamiliar with them. Consider using a tenant screening product like Avail that can review documents for you. Avail’s system will complete full background checks and income verification to let you know who the best tenant is for your property. In addition, you can compare multiple rental applications side-by-side to guarantee you’re getting the best tenants.
For more information on Avail or other top tenant screen services, read our article 6 Best Tenant Screening Services.
3. Bank Statements
While bank statements mostly serve as secondary proof of earnings, they do have several unique benefits for landlords to verify tenant income. The statements will show paycheck deposits, the tenant’s entire banking history, and their cash reserves. In addition, it will indicate if the bank account is in their name and confirm their current address.
How to Verify Income From a Bank Statement
Landlords should ask the applicant for two to three of the most recent checking and savings statements to review. From there, they should check each statement for the following items:
- Applicant name and address
- Date of statement
- Beginning and ending statement balance
- Money in (deposits/credits) and money out (withdrawals/debits)
- Transaction history
- Bank name and address
Double-check the bank statement deposits against the amount indicated on the pay stubs. This is a great way to spot any fraudulent pay stubs and confirm monthly gross income. Review the applicant’s banking history to make sure there’s more money coming in than going out and there are not a lot of frivolous purchases.
Look for bounced checks, overdraft fees, and bill-paying history. Also, evaluate their savings account to see if there are enough reserves to pay for rent in the event the applicant loses their job and does not have steady income coming into their account.
4. Letter of Employment
A letter of employment is used as secondary proof of an applicant’s gainful employment and income. It is also a way to determine a potential tenant’s employment length. Some landlords require a specific length of employment in their current role to be qualified to rent their property. This shows consistency in income and commitment, which are beneficial traits of a highly qualified tenant. However, others only require seeing that their prospective tenant makes the appropriate income to qualify.
How to Verify Income From an Employment Letter
An employment letter often takes more effort to obtain than pay stubs or bank statements because it needs to be requested from the applicant’s employer. But, the actual letter should be on company letterhead and contain the following elements:
- Applicant name
- Date of letter
- Beginning date of employment
- Applicant position at company
- Gross yearly salary (and guaranteed bonuses, if applicable)
- Employer name, address, contact information, and signature
Did you know?
Many employees earn sizable guaranteed bonuses that make up a majority of their salaries. If this is the case, the employer should include their bonus amount as part of the employment letter. If it is a guaranteed amount each year, you can choose to include it as part of the salary. If the bonus is discretionary or performance-based, which means it’s not guaranteed, it may not be something you want to include as part of their tenant income qualifier.
Unfortunately, letters of employment can be easily forged on a Word or Google document. On the other hand, they contain information that can be used to confirm the employment details of the potential tenant. Check the employer’s name, address, and gross yearly income against pay stubs and the information written on the rental application. Call the company to confirm the details as well as research through LinkedIn to make sure the document is a truthful employment and an income qualifier for the tenant.
Supplemental Proof of Income Documents
Even though the four income documents listed above are the most commonly used and provide a substantial amount of income information to a landlord, they are not the only documents available to verify income. For instance, an applicant’s income can be verified by an accountant if they’re self-employed, or they can collect money from other sources like court-ordered agreements.
Depending on your applicant’s employment status and income sources, you may have to request additional documents to prove income like the following:
5. Offer Letter
If an applicant just accepted or is just beginning a new job, they may not have an employment letter to provide as part of the rental application. In lieu of the letter of employment, they can submit an offer letter to provide evidence that they will be gainfully employed. In order to remain valid, offer letters should only be accepted by a landlord if the applicant has been hired within the past 30 days.
How to Verify Income From an Offer Letter
The applicant will need to request the offer letter from their new employer, or they may have a copy of the letter in their possession if the hire was within the last 30 days. The offer letter should be on company letterhead and contain similar information as the letter of employment, e.g.:
- Applicant name
- Employment start date
- Applicant position at the company
- Gross yearly salary (and guaranteed bonuses, if applicable)
- Employer name, address, contact information, and signature
Similar to the letter of employment, landlords can verify this information with the employer by calling to confirm the details. They also can research the applicant and company on LinkedIn. Keep in mind that if the applicant is newly starting this position, they may not have posted it on LinkedIn yet out of courtesy to the previous employer.
6. Profit & Loss Statement
A self-employed applicant should provide the landlord with a profit and loss (P&L) statement to show their business’ income and expenses. This secondary supporting document should be used in conjunction with tax returns, bank statements, and a CPA (certified public accountant) letter. A tenant can ask their accountant or bookkeeper for their P&L statement or pull it from their records if they do their own accounting with a product like QuickBooks.
How to Verify Income From a P&L Statement
This document will show the landlord whether the owner is taking a draw from their accounts and how much, or if they’re paid as a W2 employee on the payroll. The items that a landlord should be on the lookout for are:
- Company name
- Time period of the statement
- The total profit or loss during the period stated
Check with the Secretary of State’s corporate filings division to verify the ownership of the business and if the business is active and in good standing. Research the business online through Google and LinkedIn to review the company’s history. If the corporate filing shows a resident agent who is different from the tenant-applicant, call the resident agent to verify the applicant is the business owner.
7. Certified Public Accountant (CPA) Letter
A CPA letter is, in essence, a letter of employment for those who are self-employed. While self-employed people could write their own employment letter, it will be less believable to landlords because the facts and figures are written by the person who owns the business and wants to live in the rental property.
How to Verify Income From a CPA Letter
Landlords need to request that business owners get a letter from their accountant as proof of their income and past income. The letter should include:
- Accountant’s name, address, contact information, and signature
- Applicant name and company name
- Date of letter
- Date business started
- Stake in company
- Income for the past two to three years
- Projected or year-to-date income for the current year
To verify the income, landlords should double-check the applicant’s tax return documents and P&L statements against what is written in this letter. If there are any inconsistencies, it’s best to reach out to the accountant to understand the numbers and confirm any details.
8. Social Security Benefits Statement
9. Court-ordered Agreement
A court-ordered agreement is a signed legal document between an arbitrator and a third party that the court has ordered to pay. The most common types of court-ordered agreements include spousal alimony and child support, as well as a payout from a trust or a lawsuit. Court-ordered agreements are not very common, but still can be a verifiable source of income for potential tenants.
How to Verify Income From a Court-ordered Agreement
An applicant may already have a copy of their court-ordered agreement in their files. If they don’t, they can get it from their attorney or from the court clerk’s office where the ruling took place. Unless they’ve been sealed, these documents are part of the public record, meaning you might be able to look them up yourself via the county clerk’s office. Confirm the following details:
- Shows the document is a court-ordered agreement
- Income amount and frequency
Landlords need to verify if the payments are monthly or paid in one lump sum. If it’s a lump sum, request additional bank statements to make sure there’s still enough money to supplement or pay rent consistently. If the agreement is structured as a monthly stipend, ensure it’s the income multiple you’re willing to accept.
10. Landlord Reference Letter
A reference from a previous landlord should be supplementary documentation, giving insight into the applicant’s character and financial standing in relation to previous rental properties. Similar to the letter of employment, the landlord reference letter needs to be requested from the applicant’s previous landlord, which may take more time and effort to get. In addition, some landlords may refuse to write them at all.
How to Verify Income From a Landlord Reference Letter
When reviewing the landlord reference letter, landlords should look for the following information:
- Applicant and previous address
- Previous landlord name and contact information
- Amount of rent paid per month
- Length of tenancy
- On-time rental payments
See how much the applicant paid at their previous residence and if they made their payments on time. Compare that to the amount of rent you will be charging and their current income to decide whether they can afford to pay the rent you require. You can also call the previous landlord to confirm the stated information.
Also, some landlords will only stick to the facts and not include a character reference or personal information about the tenant to avoid violating any Fair Housing laws.
What to Do if Tenants Cannot Prove Income
There are times when applicants cannot prove their income or may not be able to afford the property. For example, a newly graduated college student is looking for their first apartment, or an individual is recollecting their finances after a bankruptcy. There are two options in this scenario: to reject the tenant or to ask them to get a co-signer or guarantor.
If you’ve decided that you do not want to accept the applicant as a tenant, it is essential to handle declining the applicant properly. It’s a good idea to create a rejection letter, also known as an adverse action letter, with a checklist of potential legal reasons an applicant is denied.
To find out more information about what needs to be included in your rejection letter, visit our article How to Screen Tenants for a Rental Property in 6 Steps (+ Screening Questions & Income Calculator).
On the other hand, if you feel that the prospective tenant has a promising background, but just not enough income to meet rent requirements, you can ask them to seek a co-signer or guarantor. It could be a family member, friend, co-worker, or anyone the applicant knows who is willing to be liable on the lease if the applicant cannot or will not pay the rent. The guarantor should complete an application and submit their documents for the landlord to review to make sure they are qualified to co-sign the lease.
If the applicant does not have a person they can ask to be a guarantor, there are companies that will guarantee the property with you. The Guarantors is an insurance company that provides financial solutions, minimizing risk for landlords and providing opportunities for tenants. Landlords must sign up and choose the right level of protection for their property. Then potential tenants can apply through The Guarantors to get financial assistance to rent a home.
Tips for Spotting Fake Proofs of Income
Now that you know how to show proof of income and how landlords verify income, it’s also important to know how to spot fraudulent documents. Unfortunately, some applicants will provide fake documentation on the rental application with the hopes of tricking a landlord into giving them a lease. Knowing what to look for can help you vet your prospect’s proof of income, thus saving you time, money, and possible litigation. Here are some tips for how to spot fake income documents:
- Listen to your gut: If the applicant’s income doesn’t seem to add up or if you feel something isn’t right, go with your intuition. If you have trouble verifying their claims, you should reject them as a tenant. If there are issues in the beginning, they often become magnified later on and may cost you in evictions and legal fees.
- Require tenants to sign a Form 4506: If you want to verify the information on a profit and loss statement or validate a potential tenant’s income, you can request a transcript from the IRS with a signed Form 4506. The transcript will show the tenant’s federal tax documents. The transcript is the official income received and recorded by the IRS and is stamped as official, so it can’t be forged.
- Use a checks and balances system: The purpose of collecting several documents to prove an applicant’s finances is for applying a checks and balances system. Review pay stub financials against tax returns and bank statements. Check the letter of employment against the pay stubs. Use the CPA letter in comparison to tax returns and P&L statements. Reviewing all the documents next to each other will show if there are any fakes or inconsistencies.
- Do research online: With the majority of individuals and businesses on the internet, landlords can easily do research online through Google, government websites, and LinkedIn to verify information provided by the applicant. Use the internet to your advantage, but remember not everything on the internet is truthful.
- Pay attention to inconsistencies: When doing your checks and balances with the paperwork, take note of the specific numbers that you find. If the salary on a letter of employment reads $60,000 and the pay stubs say the salary is $55,000, you should immediately be on alert for a fake document.
- Notice if paperwork has official markings: Documents from employers should all be on letterhead or include the logo of the company that the prospective tenant works for. Tax returns, court-ordered agreements, and Social Security statements should include government markings. If you do not see these titles and logos on official paperwork, a red flag should be raised.
Stay aware of these tips as well as other prominent tenant scams by reading our article 20 Types of Tenant Scams Every Landlord Needs to Know.
Landlords must request specific documentation as part of their rental application process to verify the income of each potential tenant. Without income verification documents, landlords can put themselves into a tough situation that can result in a loss of profit, time, money, and/or eviction. Review each document with a fine-toothed comb, and don’t hesitate to ask for supplemental documents to protect your real estate investment and profits.