Formal proofs requested for official document verification include the following:
1. Pay Stub
A pay stub is often the simplest way to demonstrate income proof. It provides information on the earnings received during a specific pay period and the Year-to-Date (YTD) income. Since it is an official document issued by the employer, it may suffice as proof of payment without additional verification documents. However, if the job is recent, if there are multiple jobs, or if income from tips or commissions is not included, the pay stub may not provide a complete picture.
2. Tax Return
Another reliable option is a copy of the most recent income tax return, typically the federal tax return filed with the IRS in the United States. Tax returns are considered a credible means of verifying income as they are legal documents encompassing both earned and unearned income sources. However, a tax return only reflects income from the previous tax year and does not prove current employment status or ongoing sources of revenue.
3. Bank Statement
A bank statement serves as supporting evidence for other documents, particularly in establishing the authenticity of self-employment income. It provides a comprehensive view of your bank account, including the total balance and details of transactions conducted within a specific time frame. This is particularly useful in demonstrating consistent cash flow, such as monthly deposits from clients or employers or displaying significant savings. If one has concerns about sharing personal information, requesting a statement of balance only or excluding sensitive purchases from the provided bank statement is possible.
4. Court-ordered Payments
Court-ordered payments encompass obligations like child support and alimony. If one does not possess existing records of these payments, one can obtain them by requesting relevant documents from the court. Such documents can substantiate your ability to afford rent, even without employment-based income.
5. Unemployment Benefits or Worker’s Compensation
If one is presently unemployed but receives unemployment payments, worker’s compensation, or disability insurance, these can serve as proof of income. They must ask for the necessary documents from their insurance firm or employer.
6. Pension Distribution or Social Security Benefits
The Social Security Administration disburses payments to eligible retirees every month, whilst pensions are provided as retirement benefits in particular professions, such as the local government. One can obtain a Benefit Verification Letter from their online Social Security account or utilize their Pension Distribution Statement (1099-R) to validate income.
7. Profit and Loss Statement
Self-employed individuals may face challenges presenting a traditional income statement if their income fluctuates. For instance, freelance graphic designers who receive payment upon project completion may find providing a consistent income record challenging. In such cases, a profit and loss statement generated from accounting tools or an earnings statement from platforms like UpWork can be submitted as evidence of cash flow. Although such documents are not legally binding, they demonstrate income patterns.
8. W-2 or 1099-MISC Forms
Another option is to submit tax-related documents, like a W-2 or 1099 tax form. This approach is practical if one has not yet filed their tax return or their income has changed since their last tax filing. A W-2 tax statement is received from any employer who has paid you more than $600 annually, including part-time employment. If you have earned self-employment income, you should get a 1099-MISC form by the end of the tax year.
9. Proof of Income Letter
If none of the above documents suit your circ*mstances, you can request your employer to provide a proof of income letter. This can be beneficial in cases where there are gaps in your employment records due to sabbaticals, leaves of absence, or if you have an unconventional compensation package that is not reflected in your pay stubs. The letter from your employer can verify your employment status, salary, or duration of employment.
Requirements for Different Types of Employees
The primary documents required for Pay As You Earn (PAYE) employees typically include:
- Copies of all payslips from the preceding 2 months (or more) or from the preceding 8 weeks (or more) based on whether the applicant receives weekly or monthly payments
- Total income for the previous tax year, which may vary depending on the applicant’s location
For applicants who are pensioners or have additional sources of income, the following statements may be necessary:
- Annual pension statement
- Trust fund income statement
- Maintenance payment records
- Statements of regular state benefits, such as Social Security or unemployment benefits
For self-employed individuals, the recommended income verification documents are:
- Self-employed wage and tax statements, which are considered reliable evidence of income
- Bank statements are beneficial when they show consistent business-related deposits
However, evaluating each applicant on a case-by-case basis is essential, as there may be instances where seeking professional proof of income services is advisable.
Why Do Financial Firms Need Proof of Income?
Financial firms require proof of income from their customers for various purposes. One of the primary reasons is to validate the legitimacy and regularity of the funds’ sources, ensuring that the declared amount matches the customer’s application or provided details.
Here are several vital reasons highlighting the significance of proof of income:
- Educational institutions may have specific quotas for individuals belonging to particular income groups.
- The scholarship is often given based on income criteria, prioritising those with lower incomes.
- Various financial institutions require proof of income when applying for loans.
- Some job applications necessitate proof of income for salary calculation purposes.
- Proof of income can help applicants avail of medical benefits and subsidies.
- It facilitates getting loans from government agencies.
- Certain types of pensions are accessible upon providing proof of income.
- Access to natural disaster relief programs may require verification of income.
- Veterans may receive financial aid based on proof of income.
- Proof of income can enable individuals to access free food ration programs.
- Business grants or loans may be available under specific criteria requiring proof of income.
Document verification holds particular importance in business-client relationships. Businesses must verify their clients’ access to legitimate income, especially when conducting financial transactions such as receiving investments, making investments on their behalf, or handling remittances. Additionally, banks and other financial institutions consider proof of income crucial during customer onboarding.
How Can Shufti Pro Help?
Manually verifying income documents is a challenging task to do. This is where Shufti Pro offers steps in, offering an automated AML solution that verifies customers’ income documents to keep scammers away.
Here’s why businesses should choose our AML solution:
- Quick Turnaround: Can be completed within seconds compared to manual gathering and reviewing documentation that could take days or weeks.
- Enhanced Accuracy: Evaluate financial data and verify an individual’s income with a reduced likelihood of errors by leveraging advanced algorithms and machine learning.
- Improved Customer Experience: Eliminates the need for customers to gather and submit various documents, making the process easier and less frustrating.
- Cost Savings: Automating the income verification process saves resources, increasing efficiency.
- Heightened Compliance: Helps collect and verify all required evidence, reducing the risk of compliance issues.
Still confused about how proof of income documents determine the client’s financial status?
