There are many ways you can show proof of income when you're self-employed. Learn how to use a 1099 form, federal tax return, or generate your own pay stub.

How to Provide Proof of Income if You're Self-Employed

Egon Tiderman
March 08, 2020

How to Provide Proof of Income if You're Self-Employed

Self-employment has countless benefits and several notable drawbacks. Namely, many freelancers or self-employed people struggle to provide proof of income. Unlike those under employment contracts, they can't simply use their pay stubs. What if you are primarily paid in cash or with checks that don't specify they were compensating you for your work?

Unfortunately, many self-employed people trying to rent an apartment or apply for subsidized health insurance will need to find a different solution. Luckily, there is more than one way to provide proof of income when you're a freelancer, private contractor, or small business owner.

What Is Proof of Income and Why Do You Need It?

Proof of income is any document that clearly shows your earnings. You might be asked to provide proof of income on several different occasions. A landlord might ask to see regular payment slips before you can rent a house. Similarly, the bank will ask for proof of income when you apply for a loan.

Proving that you have a steady source of income is a much more straightforward process for people with employment contracts than for those who are self-employed. When a company employs you, the typical proof of income is a pay stub or W-2 tax form. 

An employer-issued pay stub contains all the relevant information regarding an employee's payment for a certain period. It shows gross wages, taxes, deductions, contributions, and net pay. However, not all states require employers to issue pay stubs, so proof of income can also be a series of bank statements or federal tax return copies.

Proof of Income for the Self-Employed

Providing proof of income for that loan or apartment rental can be a trickier task for freelancers, independent contractors, side hustlers, and small business owners. Fortunately, self-employed people can use a few different documents to provide paycheck proof to potential lenders or landlords.

Create a Self-Employment Pay Stub

Given that the pay stub is the gold standard for proof of income, one of the easiest options is to simply issue yourself a pay stub. As your own boss, you can print a pay stub that will outline a complete record of how much you've paid yourself. 

You might take time and create a spreadsheet that includes the gross pay, taxes, insurance, retirement plans, and net income, but that's mostly impractical. A simple solution is to use an online pay stub generator to create and print your own pay stub. A good pay stub generator will ask you a few simple questions and create a custom pay stub for you in a couple of minutes.   

Annual Tax Returns

Another way to provide proof of income is to use annual tax returns. They clearly show what you've made in the previous year and are fully recognized by the Internal Revenue Service. 

The only issue with this method is that sometimes annual tax returns underestimate the self-employed individual's total earnings. That's because they're not obligated to report income below a specific amount.

If that's the case, the first step is to acknowledge it. Then, the self-employed individual must provide additional documents for all income that was not recorded. Often, including a few bank statements suffices.

Wage and Tax Statement for Self-Employed (1099 Form)

One of the most reliable types of proof of income is the 1099 form. The IRS issues a 1099 form that contains a person's Social Security number or a taxpayer identification. If you're self-employed, you must use this form when you do your taxes.

Independent contractors often receive 1099 forms from their clients, reflecting that they have been paid for their services. The entities that have paid for the services fill out the 1099 form and send a copy to the IRS. When you're an independent contractor, it's not always easy to estimate how much income to report on the 1099 form as it can affect your tax bill. In that case, you can talk to an accountant or use an online tax calculator.

Bank Statements

A history of regular deposits in your bank account can be helpful when trying to provide paycheck proof. It's even better if you have a separate bank account for your business expenses, so there is no confusion with personal transactions. 

You can also use a personal bank statement for proof of income, but you might have to go through all the deposits manually and clearly identify what the payments were. Bank statements are not the ideal proof of income, but they will work in many situations.

Profit and Loss Statement

A document that summarizes costs, revenues, and expenses for a fiscal year is called a profit and loss statement or an income statement. Typically, companies and organizations require profit and loss statements to keep records regarding their ability to profit. It's a type of balance sheet that shows a steady cash flow.

This type of proof of income is more common for self-employed people who function as a business entity than for independent contractors. However, freelancers can also keep income statements. 

Contracts and Invoices

While not ideal, signed client contracts can serve as proof of income in some situations. Paid invoices from the jobs you've completed also signify proof of income. However, for this option, you'll likely need a thorough chronological record. It's essential to show a recent steady cash flow and that you have money left at the end of each month.

Managing Your Time and Records

When it's time to ask the bank for a loan or move to another apartment, it's best not to scramble and figure out what to use as proof of income. If you're a freelancer, independent contractor, side hustler, or small business owner, there are several ways to prove your income. Keeping the 1099 forms on record or annual tax returns is incredibly beneficial. But you can also rely on your bank statements and invoices.

Using a pay stub generator is fast and super convenient. And Paystub Engine is here to help. Check out our custom paystub creator today, and you can have proof of income in as little as two minutes.

Paystub Engine

August 20, 2021