Income verification is essential for establishing the origins of the particular funds or assets which are the subjects of the business relationship between an organization and an applicant. The goal of this process is to ensure that the motive for the business relationship between the organization and the applicant, together with the transactions undertaken on the applicant’s behalf, are compatible with what could be reasonably expected from that individual, considering their circumstances. Given that income is a factor that affects various parts of our lives, proof of income can be an important indicator for lenders, homeowners, and many other organizations and is confirmed with a proof of income letter or income verification letter.
This document is usually requested when determining the applicants’ ability to pay. While not all organizations require this document, it can be very important in different situations, like taking out a mortgage, buying a car on a loan, or renting a place. Therefore, it is important for employers to know what a proof of income letter looks like and how to write one in case employees ask for it.
What is a Proof of Income Letter?
A proof of income letter determines and confirms an individual’s income and employment status. It is a formal, official letter usually composed by employers in order to confirm that an individual currently works for them or has worked for them in the past.
An income verification letter can be written by an employer or other selected parties, such as an accountant or HR manager. Employees can also write their own proof of income letter if they want, as long as the details are confirmed by their employer, accountant, or another relevant individual, depending on the circumstances.
Either way, a proof of income letter should clearly state one’s basic income information, including workweek hours, annual income or wage per hour, and how an individual expects to maintain or enhance it in the future.
Current or former employees may require a proof of income letter to use as supporting evidence in different situations:
- If trying to lease a home, apartment or car, the lease issuers may want this letter to confirm that an employee can pay to uphold the lease;
- When obtaining a credit card, an employee may need a proof of income letter to verify that they can pay back debt if needed;
- In the process of getting a loan approved, banks may require a proof of income letter to confirm that employees are able to pay it back with their salary;
- When applying for another job, employees may need to present a proof of income letter to another employer in order to confirm that they have earned a certain salary in the past or currently earn a salary; or
- When purchasing a home and applying for a mortgage, employees may need a proof of income letter to prove that they can make these payments.
Writing a Proof of Income Letter
For an income verification letter to be effective, employers should begin with information about a recipient and place it at the top of the letter. This information may include the full name of the recipient and their official title, the name of the company or organization they work for, the address of the company or organization, the direct phone number of the recipient and the date on which employers wrote the letter.
The next part of the letter should outline all the current or former employee’s work history and employment information. This part may cover their official job title, their employment status, the length of the time they have been employed, their usual salary or wage and the basis on which they receive payment. Employers can also include any information regarding bonuses or commissions they may receive.
Finally, a proof of income letter should include employers’ contact information so the recipient can contact them if any questions arise. Therefore, to conclude the letter, employers can provide contact information, including a direct phone number, email address and company address. They can also include work hours or indicate when might be the best time for a recipient to reach them.
Understanding Other Types of Income Verification Documents
Along with a proof of income letter, lenders, landlords or other organizations may request other documents as supporting documents, depending on the applicants’ circumstances.
Other proof of income documents may include:
- Pay stubs;
- Wage and tax statement;
- Last year’s tax return;
- Social Security proof of income letter;
- Annuity statement;
- Pension distribution statement;
- Court-ordered agreements;
- Unemployment compensation letter;
- Workers’ compensation letter;
- Interest and dividend income; and
- Severance statement.
Standard documents for self-employed individuals are:
- Annual tax returns;
- Bank statements; or
- Profit and loss statements.
Streamlining Your Income Verification Process
Income verification is a critical reporting process for employees, as it is crucial in proving they have a steady income and are able to make monthly payments on time. Therefore, employers are obligated to provide the required income and employment information to employees or their verifiers in a timely, detailed and accurate manner.
In addition to this, employers must pay special attention to their employees’ sensitive data protection and perform due diligence when allowing access to their personal information. More and more employers are opting for proper income verification tools that streamline the income verification process while eliminating the risk and reducing the verification processing time.
Whether you are conducting verifications manually or relying on an electronic solution, the most viable step toward process improvement today is to automate your income and employment verification process and implement a secure and efficient way to completely eliminate the verification workload and improve your company’s productivity and employee satisfaction.