Landlords typically ask prospective tenants for proof of income that shows if they can afford rent, how much they have saved and if they’re committing fraud with forged documents. Pay stubs are the best proof of income document to check, but it’s recommended to collect at least one other proof of income document and compare the two.
Collecting these documents can be time-consuming. Rentalutions is an online property management software that offers online tenant screening services like verifying proof of income and more. You can use them to screen tenants and verify proof of income and your first screening is free.
How to Verify a Tenant’s Income
You can verify income manually by requesting 1 to 2 documents that show proof of income or through a property management service. A property management service is easier and saves time, but costs more. Regardless, a general rule of thumb is that a tenant needs to prove they make at least 3x times current monthly rent.
Types of Documents That Can Verify Income
|Pay Stubs||Primary proof of income for any W2 employees|
|Tax Returns||Primary proof of income for self-employed small business owners|
|Bank Statements||Secondary document used to corroborate pay stubs, tax returns, or social security benefits|
|Letter from Employer||Secondary documentation used with W2 employee pay stubs|
|Profit and Loss Statement||Secondary proof of income for self-employed tenants|
|Social Security Benefits Statement||Primary proof of income for retirees|
|Court Ordered Agreement||Primary proof of income for those earning alimony or something similar|
Some landlords include overtime, bonuses, seasonal pay and hazard pay when verifying a tenant’s income. However, since the earnings aren’t usually consistent, it’s always best to use their base salary in order to qualify them, and only use variable earnings if they’re on the cusp of qualifying.
Here are the 7 ways that a renter can show proof of income:
1. Pay Stubs
Pay stubs show a tenant’s full name, employer’s name and contact information. They also show how much income they earn and how often they receive that income. For example, pay stubs will tell you a tenant’s year to date income as well as his or her per-paycheck earnings, including any overtime or bonuses.
Paystubs are the most important source proof of income and they should always be requested along with a secondary source of income verification when screening tenants. However, only W2 employees have pay stubs. Self-employed tenants and independent contractors will have to show other documents that prove their income, such as bank statements and/or tax returns.
How to Get a Tenant’s Pay Stubs
A landlord has to get the tenant’s pay stubs directly from the tenant. The tenant will have access to their pay stubs each pay period, either online or as a hard copy. Since tenants usually don’t want the landlord to keep the pay stubs, it’s fine to take a photo or make a copy of a physical stub or request a PDF copy of the pay stub via email.
A landlord should request the tenant’s 2 most recent paystubs. It’s up to the landlord how they want to keep track of the tenant’s pay stubs. Some landlords prefer to save everything in digital files and other prefer to have a hard copy kept in a file in a secure filing cabinet.
How to Verify Income Using Pay Stubs
Now that you have the tenant’s pay stubs, it is time to verify them. This can be done by checking the pay stubs for the amount of income per pay period Most W2 employees are paid bi-monthly, and you’ll want to multiply their per-paycheck earnings by 2 to get their monthly earnings. You can also check year-to-date earnings.
Here’s an example of a standard paycheck below. The 4 things you’ll want to look for when verifying proof of income are numbered 1 – 4, with a short explanation for each.
- Employer Info – Employer name and address which you can use as a contact.
- Tenant’s Info – Name and current address, which should match their application.
- Current Total Earning – Gross income for pay period.
- YTD Gross – Year to date gross income, showing how much the tenant has earned this year
Part of checking proof of income is verifying that the proof of income document isn’t fraudulent. Start by asking for the tenant’s 2 most recent pay stubs and then look at their per-pay-period income and the Year to Date (YTD) amounts. Often times these numbers won’t match up if the pay stub isn’t real. You don’t want to have to evict a tenant a few months after signing the lease, so you should always double check the pay stub with another form of income verification.
“Another way to ensure you are receiving accurate pay stub information is to call the employer and ask about the tenant. Are they still employed and is employment expected to continue? Is the amount listed on the pay stub correct? Is there any anticipated change to pay in the next 12 months? However, understand that many employers won’t answer these questions on the phone. The employer may send you a form to fill out with the tenant’s signature authorizing they release the information.”
— Stacy Brown, Franchise Operations Manager, Real Property Management
The pros and cons of accepting pay stubs as proof of income for apartment rental include:
- Pay stubs are easy to read for the landlord
- The tenant can obtain them with little effort
- It’s simple for the landlord to verify that the tenant works for the employer listed on the paystub
- Tenants can have fake pay stubs created online
- Employers won’t verify the tenant’s income over the phone
- Overtime listed on the paystub can give the impression of more money but it may not be consistently offered to the tenant
Obtaining pay stubs can be time-consuming since you have to track down the tenant and remind them to send them to you and then file them. Rentalutions can help do this for you. They screen the tenants and collect all the proof of income verification online. All you have to do is log on and check out the tenant’s digital file.
2. Tax Returns
Tax returns can be a supporting document for W2 employees or a primary document for self-employed tenants like an independent contractor or business owner. However, it’s best to get tax returns in addition to either a tenant’s pay stubs or bank statements. You’ll typically want to get the last 2 years of tax returns to verify income.
How to Get a Tenant’s Tax Returns
The landlord must ask the tenant for their tax returns. The tenant can get the copy they filed directly from the federal government or get them from their accountant, but the most likely scenario is that they download them online. For example, online accounting software like QuickBooks saves tax returns for easy downloading.
Like with pay stubs, landlords need to put in the time and effort to obtain tax returns from the tenant. If you use Rentalutions rather than doing it manually, they will request tax returns from the tenant, upload it to their digital file and then provide you with access to it.
How to Verify Income Using Tax Returns
It’s recommended when screening tenants to get their past 2 years of tax returns, especially if this is the only proof of income they have. This will show you who they worked for over the past two years, as well as what their overall income is. The longer period of income shown, the more financial history you have to consider when deciding if they will make a good tenant or not.
Tax documents come in various forms but the commonly accepted ones are W2s for employees, 1099 forms for the self-employed and 1040s for sole proprietors which show all income for the past fiscal year. While W2s and 1099s are tax documents and not tax returns, they can be used in lieu of tax returns since they have year-end income information.
Here’s an example of a 1040 tax return. Look at the tenant’s contact information and verify it matches what was listed on their rental application. Then look at the wages and their gross adjusted income to verify they can afford the rent.
- Type of Document – 1040 Tax return and the year is 2014
- Tenant Information – Name and address, which should match the name and address on their rental application
- Income – Shows their earnings before deductions, which will verify if they can afford the rent
- Totals – This shows the tenant’s adjusted gross income, which takes into account deductions
“If you’re worried about a forged tax return, you can verify the document by doing an internet search of the company on the tenant’s tax returns. See if the company exists, look up the address and phone number and then call the company to confirm the tenant works there. If there are previous employers on the tax returns, do the same thing to verify that the tenant also worked there. If you find any discrepancies, ask for additional documentation or decline the tenant’s application. Using these methods, we have disqualified hundreds of applicants who claimed they met all the tenant requirements but actually didn’t.”
— Eric Bowlin, landlord & founder, Ideal REI
The pros and cons of accepting tax returns as proof of income include:
- A comprehensive look at tenant’s past earnings
- Tax returns don’t overstate a tenant’s income
- Tax returns are harder to forge than other documents
- Tax returns are harder for tenants to get
- They may not account for current bonuses and raises
- They aren’t current since they show earnings from the previous year
- They may disqualify a tenant who doesn’t properly report all his/her income
3. Bank Statements
Asking for a tenant’s 2 most recent monthly bank statements is a good way to verify what you’re seeing on a tenant’s pay stubs as a supporting document. It can also be used as a secondary proof of income if a tenant is self-employed. If so, you should first collect their tax returns as the primary document.
Even though bank statements are a secondary proof of income they have unique benefits, such as the ability to see a tenant’s entire banking history or check their cash reserves. If the tenant has several bounced checks or an overdrawn account they may not have the financial stability that you want to see in a prospective tenant.
Bank statements can also be used to verify other sources of income, such as if a tenant has a part-time job or side income that they don’t receive pay stubs for. Babysitting, handyman services, and selling baked items are all examples of income that won’t usually be shown on pay stubs.
Pro tip: If the tenant’s income doesn’t add up or if you feel like something isn’t right, go with your intuition and don’t rent to them. If there are issues in the beginning, they will only become magnified later on and may cost you thousands of dollars in eviction and legal fees.
How to Get a Tenant’s Bank Statements
You can get bank statements directly from your tenant. The easiest method for the landlord to obtain them is to ask the tenant to email them a PDF of their most recent statement which should show the tenant’s itemized transaction history, including deposits and withdrawals.
“A tenant who bristles at having to show income through their bank statements should send up a big red flag for the landlord. The ability to pay should be a point of pride, not discomfort.”
— Elizabeth Gibson, Chief Content Officer, EZ Landlord Forms LLC
How to Verify Income Using Bank Statements
The landlord should ask the tenant for 2 of their most recent statements so they can see the banking history over the past 2 months. The longer you’re able to look back in time, the more you can see their financial position and transaction history. This helps you verify their ability to afford rent.
Typically, you want to see at least 3x – 6x months cash reserves in addition to consistent income deposits. Here’s an example of a bank statement. Look for the bank’s name, the tenant’s name and address, and the statement’s dates. Then look for the total withdrawals and deposits. If the tenant submitted a primary proof of income document, match that income with the bank deposits to ensure it’s correct.
- Type of Document – Bank statement showing bank name and address
- Tenant Information – Name and address, which should match the name and address they wrote on their rental application
- Statement Period – This shows the dates of the statement, should be monthly
- Totals – Shows the tenant’s total deposits and withdrawals, which you can use to verify a primary proof of income.
To spot a fake statement, make sure all deposits are properly reflected in the total ledger balance. A forged bank statement doesn’t usually have the correct ongoing balance since the tenant has probably added deposits and withdrawals that aren’t included in the running balance.
The pros and cons of accepting bank statements as proof of income include:
- Bank statements show current information that can be printed the same day
- They are easy for the tenant to get and send
- You can see a tenant’s cash position
- Bank statements are easy to forge
- Some tenants feel uneasy about releasing such personal information
- They can be time-consuming to read through if there are a lot of transactions listed
4. Letter from Employer
A letter from a tenant’s employer is an important piece of documentation because it can serve as both proof of income and as a reference letter. However, it shouldn’t stand alone. It should be submitted in addition to 1 or more other proof of income documents, preferably pay stubs if the tenant is a W2 employee or tax returns for the self-employed.
The letter from the employer should outline how much the tenant earns and how often they get paid. It should be typed/written on a company letterhead, which includes the company name, address, phone number and contact person. It should also state how long the tenant has been at the company and what their current position is.
How to Get a Letter from a Tenant’s Employer
A tenant will need to contact their employer in order to obtain the letter of employment. Many large companies have templates and can provide them to the tenant quickly. A smaller company may need to type one out. If so, be clear about the information you’re looking to get.
How to Verify Income Using a Letter from Employer
You can verify a tenant’s income with a letter from their employer by seeing how much income they list on their application and how much income the employer says they make. You can then compare that to their pay stubs, bank statements or other sources of proof of income.
Here’s an example of a letter from an employer. Look at the name and contact information of the employer to verify it with an online search and a phone call. Then match the tenant’s information with what they wrote on their application. Finally, check that their wages qualify them to afford the rent.
- Type of Document – Letter from Employer
- Employer Information – Name, address, and contact number
- Tenant Information – Tenant’s contact information
- Salary- Tenant’s earnings and how long they’ve been employed which should match the earnings reflected in their primary document.
A letter from an employer provides helpful information, but since it can be easily duplicated and forged, it does need to be verified. The best place to verify it is by searching for the business online and then compare the contact info online to the information on the letter. Then call the employer and verify that the tenant works there, his/her title and ask for a character reference.
Once you’re on the phone with the employer, see if they will confirm the tenant’s salary. However, employers are not required to divulge this information. If they won’t or can’t, at least have them verify the tenant’s current employment, length of employment, and job title.
The pros and cons of accepting a letter from employer as proof of income include:
- It can be verified with a quick call to the employer
- It’s up to date with current employment information
- It’s not as invasive as a bank statement
- Tenant needs time to obtain this if they don’t already have it
- It can be very easily forged
- It may not reflect overtime and commissions
5. Profit & Loss Statement
A profit and loss statement is a commonly used document for small business owners. It can be used to show a self-employed tenant’s proof of income since it shows their business’ earnings and expenses. They can be calculated on a weekly, monthly or quarterly basis.
A profit and loss statement should only be accepted if the tenant owns a business and does not have pay stubs. It shouldn’t be accepted alone since it is usually created by the tenant themselves. It should be used as a supporting document to a bank statement or tax returns.
How to Obtain a Profit & Loss Statement
The tenant will obtain a profit and loss statement in 3 ways. They may ask their accountant or bookkeeper for it or they may pull it from their records themselves. The alternative is that the tenant may create a new profit and loss statement specifically to show proof of income for the property they’re trying to rent.
How to Verify Income Using a Profit & Loss Statement
A profit and loss statement is best used with supporting documents. First, you can find out how much money the business is making in revenues as well as its profits. Then, compare it to business bank account statements or tax returns to see if the same amounts match.
Here’s an example of a profit and loss statement. Look at the company contact information so you can verify it exists by calling the number shown and doing an online search. You can see how much the company earns and
- Company Information – Name, address and phone number so you can call to verify it exists.
- Type of Document and Date – Profit & Loss Statement which shows a business’ financial standing during the period listed.
- Profit/Loss – This shows the total profit or loss during the period stated; you can see if the profit is enough to cover the rent.
Since a profit and loss statement can be harder to verify than a letter from an employer, it’s typically used as a last resort or as a supporting document. When looking for fraud, do an online search of the company listed on the statement. See if the company exists and if it’s in the industry the tenant says he/she works in. Luckily, it’s harder to forge since the tenant would have to create an entire fake company’s operations and transactions.
The pros and cons of accepting a profit and loss statement as proof of income for an apartment include:
- It gives a good overview of the tenant’s business finances
- It is harder to forge than other documents such as a letter from an employer
- The landlord can see if the business is declining or improving which will affect the tenant’s ability to pay rent
- They may not be accurate if tenant filled it out themselves
- It needs to be verified by comparing it to bank statements
- It can be time-consuming for a landlord to review
6. Social Security Benefits Statement
A social security statement shows the tenant’s earning records from social security or disability. It’s most often used by retirees to show proof of income and it lists the amount of retirement benefits the tenant will be receiving or is currently receiving. It’s an acceptable alternative to pay stubs for a tenant who isn’t working.
A social security statement is generally used to verify income by retirees. It’s best when used as a supporting document to the tenant’s tax returns or bank statements. Since social security or disability income may be low, it’s important to look at the bank statements to verify the tenant’s cash position. They should have at least 3 – 6 times the yearly rent in the bank or be receiving 3 times the monthly rent each month.
How to Get a Tenant’s Social Security Benefits Statement
The tenant will need to obtain the social security statement and then give it to the landlord. The tenant may already have a copy in their files. If this isn’t the case, they can go online and log in to their social security account to request a social security statement. They can also call the office or go there in person to request the statement.
How to Verify Income Using a Social Security Benefits Statement
A landlord can verify the information on the social security statement by comparing it to their bank statements or tax returns. The social security benefits statement will show how much the tenant is earning per month for social security or disability, and when they will receive it each month. See if the social security benefit amounts match a secondary document.
Here’s an example of a social security/disability benefits statement. You want to look at what type of statement it is and how much the monthly income is as well as the yearly income.
- Type of Document – Social Security Statement
- Tenant Information – Name and address should match tenant application and bank statement
- Monthly Income – This shows monthly income after any deductions
- Pay Date- Date tenant receives income; rent due date should coincide with this
The landlord can call the social security office number listed on the letter and ask to verify that the tenant receives the benefits mentioned in the statement. Due to confidentiality laws, the office may not confirm this until the tenant gives their permission for them to do so.
The pros and cons of accepting a social security statement as proof of income include:
- It shows stable government income
- It helps you verify a retiree’s income
- Usually not taxed so gives tenant more income to spend on renting a property
- It’s easy to verify for fraud with the administering office
- Tenant must request a letter of earnings verification if they don’t have their current one
- The amount may differ as laws change
- It doesn’t provide insight into the tenant’s financial history like a bank statement or pay stubs
7. Court Ordered Agreement
A court ordered agreement is a signed legal document between an arbitrator and a party that the court has ordered to pay. The most common ones include spousal alimony and child support, as well as a payout from a trust or a lawsuit.
Although a court ordered agreement isn’t as common as pay stubs, it’s still an acceptable proof of income document. A court ordered agreement shows the source of tenant’s income, the amount, and the frequency that the income is received. For example, a child support order may require one parent to pay the other $24,000 per year in monthly increments of $2,000.
How to Get a Tenant’s Court Ordered Agreement
A tenant 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 sealed, these documents are public record, meaning you might be able to look it up yourself via the county clerk’s office.
How to Verify Income Using a Court Ordered Agreement
You should first see if the payments come in the form of monthly payments or one large lump sum. If it’s a lump sum, it’s a good idea to additionally request bank statements to make sure there’s still enough money left to afford the apartment. If it’s a monthly stipend, you need to ensure it’s at least 3x more than the rent.
Here’s an example of a court ordered agreement. Typically, you’ll want to check the total amount being received and how often it’s being received.
- Type of Document – This lets you know that the document is a court ordered agreement
- Earnings – You can see what the earnings are and how frequently they’re received
The pros and cons of accepting a court ordered agreement as proof of income include:
- It’s a legal document which is court mandated and enforceable
- It’s easy to verify online or with a phone call to the court because it is public record
- It’s easy for the tenant to obtain
- It doesn’t give an overview of the tenant’s work history
- It could be appealed or changed through litigation
- It doesn’t provide much insight into the tenant’s financial history
A renter needs to prove that they can afford to rent your property. This is done when they submit documentation of their proof of income. These documents are verified by the landlord to prevent fraud and to get a closer look at their finances, which help determine their suitability as a prospective tenant.