As a landlord, you need to ensure that tenants can pay their rent so you can get consistent rental income. During the tenant screening process for an apartment, you may ask for proof of income documents, such as W-2s, offer letters, or employment verification letters. Learn about the importance of proof of income for an apartment rental and discover some of the key documents tenants can provide.
What Is Proof of Income for an Apartment?
Proof of income for an apartment shows how much someone makes to verify whether they can afford the monthly rent. Landlords ask tenants for proof of income before signing a lease agreement to decrease their risk of default and get their rent on time.
Along with other items requested on a rental application, proof of income documents help a landlord screen potential tenants and catch red flags in tenants.
A pay stub is one of the most common documents to show proof of income, but other documents can affirm a tenant’s income. For example, you can ask tenants to procure an employment verification letter from their employers. Sign up for a 7-day free trial to get access to this form and other documents in Legal Templates’s library to make your life as a landlord easier.
While getting proof of income from tenants is important, you can also ask them for a landlord recommendation letter to get an idea of their rental behavior and character.
13 Proof of Income Documents for Tenants
The proof of income documents you request will depend on whether your tenant is employed. If your tenant has a traditional job, you can ask for proof of income documents like pay stubs, offer letters, and employment verification letters. Tenants who work for themselves can provide self-employed proof of income via bank statements, tax returns, and profit and loss statements.
1. Pay Stub
A pay stub or payslip is a document from your tenant’s employer that shows how much they make per pay period. It’s one of the strongest forms of income proof, but you should take additional steps to verify its legitimacy. Get the tenant’s permission to contact their employer, then reach out to their employer to verify the tenant’s work and pay history with a wage verification form.
2. Letter of Employment
A proof of income letter, salary verification letter, or employment verification letter all refer to the same thing. It’s a note from the renter’s employer describing the applicant’s role in the company, how much they earn, and how long they have worked there. It can be a sign of the tenant’s trustworthiness and ability to pay rent on time.
3. Signed Offer Letter
If a tenant is currently unemployed and will start a new job soon, you can ask for a copy of a signed job offer letter. An offer letter from a future employer can serve as proof of income for an apartment, as it shows what the tenant will earn and when they will start working. If their start date aligns with the beginning of the rental period and they will make enough to meet their payment obligations, you may consider them for tenancy.
If possible, request a signed offer letter along with current proof of income. For example, you may request recent pay stubs from a past job or bank statements showing income from a side gig.
4. Form W-2
Tenants who are traditional employees can provide a copy of their Form W-2, which shows their total earnings, deductions, and withheld taxes. While it only shows income from the previous tax year, it can be proof that a tenant once made steady income.
5. Form 1099-NEC
If a tenant is not a traditional W-2 employee, they can still show proof of self-employment income by providing a copy of Form 1099-NEC. Form 1099-NEC reports non-salaried payments over $600, so it will show proof of freelance and contract work. While it may show payments that are less consistent than those from a traditional salaried job, it can still serve as sufficient proof of income for an apartment rental.
You can also ask tenants for a copy of Form 1099-MISC, which shows miscellaneous income from royalties, prizes, and awards.
6. Tax Returns
A tax return (IRS Form 1040) is a document that reports the tenant’s income to the federal government. While it helps determine how much they owe in taxes, it can also show landlords an overview of their income for the year. It shows an overview of all income a tenant made in the previous year, including wages, salaries, tips, taxable interest from investments, ordinary dividends, capital gains, and royalties.
Verify the tax return’s date to ensure it’s current.
7. Bank Statements
Bank statements are monthly documents that disclose a tenant’s transactions, including any withdrawals, deposits, or fees. This would include any income that gets deposited into the tenant’s account.
Bank statements reveal much about your would-be tenant’s finances, so be careful when asking for this particular document and treat it as a last resort.
8. Court-Ordered Agreements
If a tenant is going through a divorce or a child custody battle, they may be able to present a copy of a court-ordered document that outlines spousal or child support. The document can show the amount and how often the tenant will receive payments, potentially providing solid proof of income.
9. Social Security Award Letter
A social security benefits letter verifies social security benefits, Supplemental Security Income (SSI), and/or Medicare income. Even though the amount from social security may not be enough to meet rent completely, a tenant may combine it with proof of income from a part-time job to meet the proof of income requirements.
A social security benefits letter can help retirees, individuals with disabilities, or individuals on fixed incomes show proof of income.
10. Social Security Statement
A social security statement is a document from the Social Security Administration that uses the renter’s earning history to determine how much they will receive in benefits in the future. It’s most useful for tenants who plan to retire early or will retire soon.
A social security statement may be one of the most reliable forms of proof of income since it’s easy for renters to access and it’s a federal document. However, its effectiveness as a means of proving income will depend heavily on how the federal government decides to handle social security in the future.
11. Disability Insurance Statement
If a tenant receives long-term disability payouts from a disability insurance policy, those payments count as income. A disability insurance statement lists the amount of disability payments the tenant receives every month. If a tenant can’t work, this document can help them show proof of income that they may not otherwise have.
12. Certified Public Accountant Letter of Income
A Certified Public Accountant (CPA) letter of income comes from a tenant’s accountant. It states that their accountant has reviewed their tax return and can verify that they have sufficient income. This document is reliable because it comes from a certified professional, and it tends to be more trustworthy than a tenant’s self-reported income.
A CPA letter of income can be useful for showing proof of income for an apartment for self-employed or traditionally employed tenants.
13. Profit and Loss Statement
Tenants who own their own businesses can generate profit and loss statements to show business revenue minus expenses, such as rent, overhead, and payroll. This form can give landlords a good idea of a tenant’s profit from their company, which is helpful if a tenant can’t access pay stubs or W-2s.
What to Consider When Collecting Proof of Income
When collecting proof of income for an apartment, you should make the following considerations to avoid back-and-forth with tenants and maintain a fair screening process:
- Account for different types of income proof: Some proof of income documents hold more weight than others, so discuss what constitutes appropriate proof before accepting anything.
- Accept alternative documents: If your tenant asks, consider accepting another document type we haven’t listed here but ensure its legitimacy through due diligence.
- Watch for fraud: Tenants can potentially fake proof of income, so landlords should verify documents by contacting employers directly or using third-party verification services with tenant permission.
- Treat prospective tenants fairly: Don’t discriminate against tenants based on the type of income they provide, such as denying a tenant because they receive disability payments.
What Is an Ideal Rent-to-Income Ratio?
Once a prospective tenant turns in proof of income, how can you tell if they have the means to lease your apartment? One way is to look at the rent-to-income ratio.
The ideal rent-to-income ratio depends on the risk you want to take on as the landlord. Generally, the standard is that the rent should be 30% of your tenant’s income. If the rent is more than 30% of their income, your tenant risks not making enough cash to pay for their lifestyle and make their rent payments.
You may consider allowing a rent-to-income ratio of less than 30% if you’re having trouble filling a vacancy, but be aware of the risks.
Example of Determining Whether a Tenant Can Cover Rent
Let’s say a tenant can show proof of making $60,000 per year, and the rent for the property is $1,000/month. The tenant makes $5,000 per month ($60,000 per year/12 months in a year).
If you multiply $5,000 per month by 30%, you get $1,500. According to the 30% rule, the tenant can afford up to $1,500 in rent, making the $1,000/month rent affordable for them.
Collect Proof of Income With Confidence
Before you agree to take on a tenant, you must consider whether they can afford to live at the property. Knowing what counts as proof of income for an apartment can help you determine if the applicant will be a good tenant. Use this information on collecting proof of income to guide you as you select a potential tenant for a rental agreement.
Once you have a tenant, you can use our comprehensive library of landlord documents and forms to manage your tenants. We offer everything from lease addendums and amendments to lease termination letters and rent-to-own agreements to help you complete your landlord duties.
Frequently Asked Questions
Should I deny a tenant who is unemployed?
It depends on the overall financial stability of the applicant. While unemployment may be a concern, you can consider other factors such as savings, assets, or a co-signer to determine their ability to meet rental obligations.
Is it legally required to ask for proof of income?
No, it is not legally required to ask for proof of income. However, it is standard practice for landlords to ensure tenants can afford the rent. Verifying income helps mitigate the risk of non-payment.
How can a student prove their income?
Students can prove their income through various means such as financial aid statements, scholarship documents, part-time job earnings, or a guarantor letter from a parent or guardian who will assume financial responsibility.
How many documents should I request for proof of income?
Generally, renters must produce at least two forms of proof of income to protect landlords against false claims.
