Your income as an independent contractor is inconsistent at best. You don’t have the luxury of a salaried paycheck and are beholden to clients for on-time payments. As a result, trying to prove regular income as an independent contractor can be difficult. But you’ll have to if you want to buy a house, rent an apartment, or get a car loan. Here, we'll look at an employer-issued income-verification letter and other ways to prove your earnings.
Generally, you’ll need some form of income-verification to show you’re able to manage on-going payments for a new loan, rental, or line of credit. As a result, it’s imperative that you use every means at your disposal to show regular earnings. Several options are available for proving your income as an independent contractor:
The most reliable method for proving earnings for independent contractors is a letter from a current or former employer describing your working arrangement. Employment-verification letters don’t always include income information, so be sure to inform your employer if you need information about your earnings in order to complete the verification successfully.
In order to initiate a request for an employment-verification letter, first determine what information is most pertinent to the party needing verification. Verification letters for independent contractors must, at the very least, specify dates of work, rate of pay, and hours/project fees that have been contracted. This will help verifiers gauge on-going income from the employer in question.
When initiating a request for an income-verification letter, contractors should specify, in writing, the reason for their request in order to give employers context. Verification letters can take time to prepare, so notify your current or former employer with ample time for them to complete it. Most employers will have handled income-verification requests before, but consider drafting a letter template in advance to reduce the work for your employer. We’ve put together a sample income-verification letter here (https://docs.google.com/document/d/1qT9eIUT0KSYhQgIZXSV_pfuMSu3WPGS6K6hUFBiMcVs/edit?usp=sharing).
If an income-verification letter isn’t available, there are several other options independent contractors can use to verify their income:
An independent contractor will typically coordinate a contract or agreement with a new client in order to document the terms of their working arrangement. If you haven’t yet received payment from a given client for on-going or upcoming work, contracts and agreements can help verifiers project your future earnings. General agreements about a working relationship that don’t mention compensation won’t be sufficient to prove income. Be sure that the contract you’re providing includes details about the earnings connected with the current project(s).
Contracts and agreements don’t provide the best proof of income, however, as you may not end up actually completing the work in question or end up in protracted negotiations with clients about deliverables or an evolving scope of work. If there are addenda to your contract during negotiations, be sure to provide the most up-to-date version of the contract.
Independent contractors are usually required to invoice their clients in order to secure their payments. Invoices are most useful for income verification when they’re presented in tandem with work described elsewhere, such as in an employment-verification letter. It helps verifiers ensure that they understand the work that underlies the payment.
Like contracts and agreements, invoices don’t actually show any record of completed payments. As a result, independent contractors should always seek to provide pay stubs or bank records to support invoices.
A bank statement showing deposits or successfully cleared checks from an employer can show that an independent contractor has actually been paid for their work. Depending on your bank, you may be able to sort your payment information so that you show only the deposits related to the employer in question. Don’t feel that you need to provide an overall statement with all of your account information, such as your overall balance; verifiers are typically interested in only your earnings information for relevant projects.
Include an invoice for each payment to help verifiers understand the origin of the payments and identify the client who’s made the payment.
Independent contractors are afforded a number of freedoms not available to salaried employees, such as scheduling their own pipeline of work and taking any desired breaks or vacations as their schedules allow. As a result, independent contractors’ incomes usually vary from month to month, so it can be more difficult to prove regular earnings needed to secure a new loan or negotiate an appropriate offer from a new client. The most important thing for independent contractors seeking to prove income is to show that the money you’ve contracted for is ending up in one of your accounts. Otherwise, there’s no guarantee for lenders or verifiers that you have actually completed the work in question.