Who Should Have Proof of Income?
If you enter into a loan agreement, you’ll have to prove your income. The best method to prove income is a pay stub, and Form Pros provides an easy way to create pay stubs for your employees. So, what does proof of income mean, exactly?
Proof of income is a document that verifies your current income, and helps another party determine your ability to pay. A pay stub provides proof of income, along with your most recent tax return or W-2 form.
Lenders:
Credit card companies and other lenders need to know if you have the income available to repay a debt.
Landlords:
A landlord wants to confirm that you have a source of income to make payments for the duration of the rental agreement.
Home mortgage:
A bank will evaluate proof of income, and your credit score, to determine the amount you can borrow.
Disability insurance:
This insurance policy replaces a portion of your income if you’re disabled and file an insurance claim. Your proof of income determines, in part, the dollar amount of the payment.
Self-employed people can prove their income using the 1099 forms they receive from clients. Client payments under $600 do not require a 1099, but freelancers and independent contractors can prove most of their income using 1099 forms. A lender may also ask for your profit and loss statement, and possibly the business bank statements.
Proving Other Sources of Income
Here are some ways to prove other sources of income:
- Social Security Proof of Income Letter: Visit ssa.gov to obtain a statement that documents your benefit payments.
- Retirement plans: Distributions from pensions, annuities, retirement or profit-sharing plans, and IRAs are reported on IRS Form 1099-R.
- Court-ordered payments: Alimony and child support are court-ordered payments, and you can contact the court for proof of the income.
Your state unemployment office can verify unemployment benefits, and workers’ compensation insurance must be confirmed through the insurance company that paid the benefit.
What is a Pay Stub?
A pay stub lists all of the key information related to an employee’s pay. Many firms also issue pay stubs to freelancers (independent contractors).
When you review a pay stub, it’s important to note the difference between current (current pay period) and year-to-date (YTD) amounts. Both are important, and the YTD balances help the employer and the worker understand if the amounts are correct.
The pay stub provides information on wages, tax withholdings, and benefit withholdings.
The rules regarding pay stubs vary by state. Some states require employers to provide pay information to workers, while other states do not. Businesses should confirm the requirements in each state where they employ workers.
Understanding the Details of a Pay Stub
When you read a pay stub, pay attention to these details:
- Payroll cycle: The number of pay periods determines how much salary is paid on each payroll date. It also determines the start and ending days for computing hourly payroll.
- Wages: Gross pay and net pay. Wages may be based on a salary, or calculated using an hourly rate of pay.
- Tax withholdings: Federal, state, and possibly local amounts withheld for taxes.
- Benefit withholdings: Amounts withheld for the employee’s share of insurance premiums, or funds to be invested in a retirement plan.
Here’s an example to help you visualize your pay stub.
Reviewing a Pay Stub Example
This pay stub was created using the Form Pro’s website. The process is simple, and far less expensive than hiring an accountant. Using the Form Pro’s website saves time, and is more reliable than using a spreadsheet.
- The employee’s personal information is listed in the top left, and you see the pay period (weekly payroll), and the pay date at top right.
- The worker’s gross earnings are listed next, and Form Pros calculates FICA and other tax withholdings automatically.
- Finally, you’ll see year-to-date and current pay information listed at the bottom.
Employers need to generate accurate pay stubs, and using technology can help.
Save Time and Money on Pay Stubs
Form Pros provides a pay stub generator that is user friendly, and helps you produce accurate pay stubs in less time. Use Form Pros to take charge of the pay stub process.
Do you understand the information on a pay stub?