Isn’t 4506-T used by lenders to obtain tax return transcripts, you may ask. Well, yes, but it also has a role in the home rental market where 4506-T is used by the landlords before choosing a tenant: income and employment verification. It is crucial to verify a prospective tenant’s employment and income because you wouldn’t want some mob boss to live in your house and pay you illegally obtained money.
Requesting a prospective tenant’s proof of income is a common and accepted process and there are different means to acquire this information:
For employed tenants
- Pay stubs for the past couple of months – These will show exact numbers and dates, to confirm the tenant’s weekly, monthly or yearly income.
- W2s for an additional assurance – These will show how much income the tenant declared for the previous tax year. W2s will also show if they have had a consistent income for the past year.
For self-employed tenants
- Bank statements – Self-employed people will not have pay stubs to show income, hence statements for a couple of months will show their average monthly income and its regularity.
- Form 4506-T – The most reliable option because it will allow the landlord to request for a tax transcript of the tenant’s previous tax returns and will provide all the relevant vital information.
When looking for a new home for you and your family, you wouldn’t want any obstacles, right? When submitting the 4506-T form, watch out for the following things,
- It should be correctly and completely filled, else the IRS will reject it. Refer to our blog for details on how to fill the form.
- A completed and signed form is valid for 120 days from the date on which it was signed.
- The IRS takes no responsibility over the data it gives out to the third party (in this case your landlord). So, be diligent and fill out the form only when necessary.
- Form 4506 is only for your federal tax transcripts. You will have to contact the IRS or other agencies to obtain your state tax information. For example, California residents have to fill out form FTB 3516 and send it to the Franchise Tax Board. It is very rarely that landlords ask for state tax return information.