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What Are Income Verification Documents?

Income verification documents should play a major role in your tenant screening process. Here's what you need to know.


Apr 10, 2021 by Aly J. Yale
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Verifying a potential renter's income is a critical part of the tenant screening process. Not only does it ensure they can make the rent on time and consistently but also that they can handle the other costs of your property, too -- things like utilities, upkeep, maintenance, and more.

Failing to verify income -- or not doing so thoroughly enough -- could leave you with a tenant who is regularly late, unable to pay, or can't afford to care for your property as it should be. (And that means more damage and turnover costs later on.)

Want to make sure you're doing all you can to choose financially capable tenants? Here's what you need to know.

What are income verification documents?

Income verification documents are items that affirm a potential tenant's earnings and ensure they can afford rent, as well as the other costs that come with a property.

You'll want to request these documents as part of your tenant application process and weigh them against the cost of the unit. Generally speaking, you'll want to see consistent monthly income that's at least two to three times the price of rent. (This ensures they have enough for utilities, upkeep, and maintenance, as well as other bills and debts they might have.)

What income verification documents should you request?

Your best bet for verifying a tenant's income is a recent pay stub or bank statement (ideally, at least a few months of them). These show you recent earnings, as well as what schedule the tenant gets paid on.

A W-2, federal income tax return, or 1099 can be good too, but remember, these only show the last tax year's earnings. If anything has changed in the months since then, it wouldn't be visible on these annual documents. Make sure you compare them with more recent proofs of income as well if you want the full picture.

For tenants who are on disability, retired, or receiving alternative income, you can also accept things like pension distribution statements, Social Security benefit statements, workers' comp letters, and more.

Here's a full list of income verification documents you might consider for each type of worker, as well as some pro tips for using them:

Type of Worker Document Tips
Full-time/salaried Employment verification letter

Tax returns

W-2s

Bank statements

Pay stubs
Don't just rely on annual statements (tax returns, W-2s). Asking for recent bank statements is always smart, as it ensures the tenant has consistent recent income with which to cover the rent.
Freelancer/contractor/gig worker 1099s

Tax returns

Bank statements

Recent invoices/sales receipts

Reports from payment platforms (PayPal (NASDAQ: PYPL), Venmo, etc.)

Tax transcript
Request at least three of these items, and back up their earnings with recent bank statements (check the number and volume of deposits over the last few months).
Retired/unemployed Social Security benefits statement

Workers' compensation letter

Pension distribution statement

Severance statements

Unemployment statements
Make sure you're aware of any expiration dates on workers' compensation, unemployment, or severance payments to ensure the payments will span your lease.
Additional forms of income Annuity statement

Court-ordered award letters

Interest and dividend statements
Make sure you're aware of any expiration dates on annuities or court-ordered awards to ensure the payments will span your lease.

Chart by author. Note: These are just general recommendations. Make sure to check with your financial or tax advisor for more personalized guidance.

Challenges in verifying income

Though it would seem like verifying a tenant's earnings should be cut-and-dried, in reality, there are quite a few problems that can arise along the way. Here are just a few of the more common challenges you might face:

  • Slow-to-move employers: Getting an employer to verify a tenant's income -- yet alone write an employment letter or income verification letter on their behalf -- can prove to be difficult (especially during COVID-19, when many people are working from home). This can slow down the screening process considerably.
  • Scarce documentation: Some tenants just won't have much documentation to provide -- particularly freelancers, gig workers, or contractors. You may need to get creative here and accept sales receipts, recent invoices, or even call up a client or two for verification.
  • Recent job changes: If a tenant has just changed jobs, they might not have much paperwork to show for it. This is when an employer verification letter can come in handy. Evaluating their credentials, past employment history, and previous earnings (as well as the consistency of those earnings) can help as well.

Running the tenant's credit is a great way to evaluate their financial health, especially where income verification documents are lagging. While it won't speak to their earnings per se, it will show their debts, payment history, and other details that can give insight into their overall financial picture.

The bottom line

If you want to ensure a tenant will pay their rent consistently, take care of the property, and do both for the entirety of your lease, verifying their income is critical.

Make sure you also take other steps in your tenant screening process, too, like calling a past landlord or two, running a background check, and verifying their identity. When in doubt (or if you're just short on time), consider using a tenant screening service to manage the heavy lifting.

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Aly Yale has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends PayPal Holdings and recommends the following options: long January 2022 $75 calls on PayPal Holdings. The Motley Fool has a disclosure policy.