Tip Income Can Help Fix Bad Credit
Tip Income Can Help Fix Bad Credit
The reporting of tip income plays a very significant role in determining whether the application for credit will be approved or turned down especially when the FICO score of the applicant is very low.
People who mainly rely on their tip income usually are faced with difficulty when they apply for car loan.
We here at Auto Credit Express are most willing to help people with credit issues to get their car loans approved. We have helped many people with this problem for the last two decades.
These are the lessons we have learned.
Report your Tip Income
People who make extra income through tips usually do not report their tip income in filing their income tax returns. They do this to avoid paying more tax and to save money. But this has a negative in applying for a car loan.
The IRS gives four points on tip income
1. Tips are subject to tax. Federal, Social Security and Medicare taxes are charged on tip income.
2. All kinds of tip must be included in filing income tax return. Tips received directly from customers, tips added to credit cards and tips sharing should be reported in gross income.
3. Tips must be reported to employer particularly when the tip is $20 or more in a month. The federal income and Social Security and Medicare taxes should be withheld by the employer.
4. Record your tip income daily. IRS Publication 1244 is provided by IRS for you to use in making your Employee’s Daily Record of Tips which is to be reported to your employer.
Proof of income
Traditional lenders usually do not do so much in verifyingincome. But for borrowers who are considered as high risk, the W-2 form where all the income is listed, verification is carefully done.This is done even if the high risk borrower presents documents from banks to support his earned income.
Effect of reported income in loan application
Non- prime lenders only require minimum monthly income and monthly bills. They use these requirements to compute the debt-to-income ratio in determining the budget for car loan. These requirements affect those with tip income in two ways.
1. Very low income reported in the income tax return will lead to the turning down of the loan application.
2. If the income reported is sufficient but if the monthly bills are higher than the reported income, chances are the loan application will also be denied.
In Conclusion
Report your tip income and include it when you file your income tax return if you want your loan to be approved.
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