Guide to Proof of Income (2024)

Proof of Income is essential for establishing the origins of a client’s funds prior to executing a transaction or otherwise establishing a business relationship.  

Proof of Income can be required for the purpose of Enhanced Due Diligence—for example, when a customer wants to conduct a high-value transaction. The goal here is to ensure that the customer’s motive is compatible with what could be reasonably expected from them. 

Let’s dive into the details.

What Is Proof of Income?

Proof of Income is a document or set of documents demonstrating a person’s earnings and financial resources. This can be used to verify their ability to pay for expenses like rent, loans, or other services. Proof of Income is commonly required by landlords, lenders, and other financial institutions to ensure that a person has a steady income stream to meet their financial obligations.

Proof of Income documents

Normally, when institutions request Proof of Income documents, they provide a  comprehensive copy of the materials required for submission. Below are some examples. 

Proof of Income documents for PAYE (Pay As You Earn):

PAYE (Pay As You Earn) is a tax system where employers deduct income tax and National Insurance contributions directly from employees’ salaries before they are paid. Below is the list of Proof of Income documents which can be used for PAYE:

• Pay slips or pay stubs. Regular statements from an employer detailing an employee’s earnings and deductions.
• Proof of Income letter. This letter can be composed by a selected party (for example, an accountant or HR-manager) and should clearly state one’s basic income information, including workweek hours, annual income or wage per hour, and how one expects to maintain or enhance it in the future.
• Earnings statements or personal financial statements. Such statements reflect general information about the person and total financial assets and liabilities.

Proof of Income documents for self-employed:

• Tax returns. Official government filings summarizing annual income, losses, and tax payments.
• Invoices and contracts. These documents define the services rendered, payment conditions and amounts due during your cooperation with customers, clients or partners.  

Proof of Income documents for business owners:

• Business Tax returns. These documents provide a comprehensive overview of income earned, including deductions and taxable income.
• Financial statement. This includes balance sheets, profit and loss statements, and cash flow statements, reflecting the company’s ongoing financial activity and conditions.

Proof of Income documents for retirees:

• Annual pension
• Trust fund income
• Maintenance payments
• Inheritance
• Loan agreements
• Regular state benefits (Social Security, unemployment, etc).

Why do companies need to request Proof of Income?

Businesses need Proof of Income to assess an individual’s financial stability and ability to meet financial commitments. Companies that usually ask for Proof of Income include lenders (e.g., banks, credit unions), landlords, property management companies, investment brokers, and insurance providers. These entities require Proof of Income to verify financial stability for loans, leases, credit card applications, insurance policies, etc.

For lenders, Proof of Income helps determine whether a borrower can repay a loan. Landlords require it to ensure that a tenant can afford rent. Brokers may request the Proof of Income to establish the investor’s financial capabilities. Employers might also ask for Proof of Income to verify a candidate’s earnings from previous jobs, especially for positions where financial reliability is important.

Regulations and obligations surrounding Proof of Income depend on the industry and context. For example, financial institutions are often required by regulations to verify income for loan approvals under laws like the Truth in Lending Act in the US. Landlords may not be legally required to ask for Proof of Income, but it is a common practice to minimize financial risk. Employers generally have discretion in requesting Proof of Income, often for roles where income verification is necessary.

Proof of Income occupies an essential place in anti-money laundering (AML) compliance and fraud prevention within the financial industry. The official documentation helps verify the other sources of income they claim to be earning including the salaries from the registered business or employment.

Suggested read: Source of Funds (SOF) vs Source of Wealth (SOW)

How can Sumsub help?

Businesses that require Proof of Income can make use of Sumsub’s questionnaires.

These questionnaires are easy to use, with a drag-and-drop interface and no coding required. They allow users to both answer questions and attach documents.

With Sumsub’s questionnaires, you can:

• Gather detailed information about the applicant’s source of funds, as well as financial status, annual income and net worth
• Specify source of funds and wealth, including salary, real estate, and investments
• Determine the typical transaction amounts associated with the applicant
• Obtain essential Know Your Customer (KYC) details for a comprehensive applicant profile
• Streamline the onboarding process by collecting necessary KYC/KYB (Know Your Business) information.