How to Become a Tax Preparer in 4 Easy Steps

Preparing tax returns can be a lucrative full-time or part-time business. And becoming a tax preparer can be easier than you think. Let’s discuss how to become a tax preparer, how to get certified to do taxes, and answer other important questions in the guide below.

What types of people prepare tax returns?

There are over 1.2 million tax preparers in the United States. They come in all shapes and sizes. They range from licensed professionals to people without formal training who prepare tax returns part-time.  Let's look at the different types of people who prepare tax returns for clients and how to become a tax preparer for each type.

Certified Public Accountants (CPA)

CPAs represent the high end of the tax pro spectrum careers. CPAs not only prepare tax returns, they routinely represent clients in tax and financial matters before the IRS. Their duties also include sophisticated accounting and tax work. CPAs generally work in large national firms or small local outfits.  Each state licenses and regulates certified public accountants (CPAs) located in the state. Most CPAs major in accounting in college. You must have a minimum of 150 hours of college accounting courses to be a CPA. The learning process also requires you to pass a comprehensive CPA exam.

Enrolled Agents

Enrolled agents (EAs) are tax advisers and preparers who are licensed by the IRS. You must pass a difficult IRS test to become an enrolled agent. But you don't have to have any particular educational background.  Anyone who can pass the test can become an EA. Like CPAs, EAs can represent taxpayers before the IRS and in administrative proceedings, circuit court, and, possibly, tax court.

Non-Credentialed Tax Preparers

Non-Credentialed tax preparers are people who prepare tax returns but are not CPAs or EAs. There are about 600,000 to 700,000 people who work as non-credentialed tax preparers. They often work part-time or only during the tax season. Many tax preparers practice with national tax preparation services like H & R Block, Liberty Tax Service, or Jackson Hewitt Tax Services. However, there is nothing to prevent you from setting up your own tax preparation business.  Non-Credentialed tax preparers typically handle individual tax returns, which are less complicated than those for businesses. They generally get paid less than CPAs and EAs. But that doesn't mean you can't make good money.

Do you need a license to become a non-credentialed tax preparer?

A big part of figuring out how to become a tax preparer is learning what licensing you will need. The IRS does little to regulate non-credentialed tax preparers. It does not require them to have licenses. But non-credentialed tax preparers can't represent clients before the IRS.  Regulating tax preparers is left to the states. In the vast majority of states, anyone can prepare tax returns for others without having to take a competency exam, get a license, or comply with any other government regulation.  As part of the steps to become a tax preparer, a few states do license preparers. These are California, Connecticut, Illinois, Maryland, Nevada, New York, and Oregon. Also, 20 states have special regulations you must comply with if you offer tax refund anticipation loans to your clients.  

How do you become a non-credentialed tax preparer?

Here are the steps you should take to become a non-credentialed tax preparer.

Step 1: Get the training

You don't need to be a genius to prepare tax returns. And don't need a college degree. However, you should have a high school diploma or GED.  Moreover, you don't necessarily need an extensive background in accounting. Most non-credentialed tax preparers handle returns for individuals, which are usually routine. Nevertheless, you still need training so you can competently prepare tax returns for others.  The less background you have in tax and accounting, the more training you'll need. If you intend to specialize in taxes for individuals, you'll need less schooling than if you deal with business taxes.  There are many tax training resources:

•  Your local community college may offer courses.
•  National tax preparation firms like H & R Block, Liberty Tax Service, and Jackson Hewitt Tax Services all provide training courses, often at low cost.
•  Some tax preparation companies offer on-the-job training.
•  Many private training companies and technical colleges offer courses.
•  The Accreditation Council for Accountancy and Taxation (ACAT) and National Association of Tax Professionals both present training courses. The ACAT offers an Accredited Tax Preparer credential to those who complete its courses and pass an exam. Credentials are not required to be a tax preparer but can help you get hired or paid more.

You can access a comprehensive list of tax training resources from the IRS website.

Step 2: Get your PTIN from the IRS

Anyone who prepares federal tax returns for money must have a valid Preparer Tax Identification Number (PTIN). You obtain it from the IRS. Getting a PTIN registers you as an "unenrolled preparer," granting you the minimum level of clearance to prepare federal taxes. You use the PTIN to identify yourself as a paid preparer in the returns you draw up for your clients.  You can obtain your PTIN online, and it's free. To get a PTIN, you must

•  Be at least 18 years old
•  Provide your address
•  Provide your Social Security number
•  Explain any felony convictions, and
•  Explain if you owe money to the IRS

There are no other requirements. But, if you have felony convictions or owe money to the IRS, it might hold up your PTIN.

Step 3: Get your EFIN from the IRS

If you intend to work as a tax preparer on your own, you need to obtain an Electronic Filing Identification Number (EFIN) from the IRS. You'll need this number to e-file returns for your clients. Any tax preparer who prepares 11 or more tax returns a year, must e-file the returns.  To obtain an EFIN, you must:

•  Create an IRS e-services Account
•  Submit an IRS online e-file application, and
•  Pass a Suitability Check

Obtaining an EFIN is free. But you may have to get fingerprinted, which can cost about $50. The IRS doesn't want to give criminals EFINs. So it may check your credit history and criminal record. It will also check to see if you owe the IRS money. For more information, refer to IRS Publication 3112, IRS e-file Application and Participation.

Step 4: Comply with state licensing requirements for non-credentialed tax preparers

The following states require non-credentialed tax preparers to obtain a state-issued license or registration. Many impose education and competency examination requirements as well.  These license requirements do not apply to CPAs, enrolled agents, or attorneys. Some of these states have other exemptions. So study your state's policy and requirements carefully.

California

Tax preparers must register online with the California Tax Education Council to work in California. To do so, you must:

 
• Take a 60-hour qualifying education course from a CTEC approved provider within the past 18 months
 
• Purchase a $5,000 tax preparer bond from an insurance/surety agent
 
• Obtain a Preparer Tax Identification Number (PTIN) from the IRS, and
 
• Pay a $33 registration fee

You must also complete 20 hours of continuing tax professional education each year.

Connecticut

Tax preparers in Connecticut must obtain a permit from the Connecticut Department of Revenue Services every two years. The permit costs $100. To acquire a permit, you must:

 
• Be eighteen years of age, or older
 
• Have a high school diploma
 
• Possess a PTIN from the IRS, and
 
• Present evidence that you have the experience, education, or training in tax preparation services

You apply for the permit online. Connecticut tax preparers must adhere to specified standards of conduct or face a civil penalty of $500 for each violation. You can also have your permit revoked. For more details, see Permit Requirements for Tax Preparers and Facilitators.  

Maryland

Maryland tax preparers must obtain a license from the Maryland Department of Labor, Licensing, & Regulation. To attain a license, you must:

 
• Have a high school diploma or GED
 
• Obtain a PTIN from the IRS
 
• Complete 80 hours of tax law training courses, and
 
• Pass a state competency exam

You need to renew your license every two years. To do so, you must complete 16 hours of continuing tax education and retake the exam.

Nevada

You must register with the Nevada Secretary of State to be a tax preparer in Nevada. You register as a document preparation service. To register, you must pay a $50 fee and obtain a $50,000 surety bond or cash bond. You must file these with the Secretary of State. Next, you must renew your license every year. Registration takes place online.

New York

You must register with the New York Department of Taxation and Finance every year to work as a tax preparer in New York state. To do so, you must:

 
• Be 18 years of age or older
 
• Have a high school diploma or GED
 
• Certify you have met all child support obligations, and
 
• Pay a $100 fee if you prepare 10 or more returns each year

You register online. You must also complete four hours of continuing education each year.  For more details, see Publication 58, Information for Income Tax Return Preparers.

Oregon

To work as a tax preparer in Oregon, you must obtain a license from the Oregon Board of Tax Practitioners. To do so, you must:

 
• Have a high school diploma or GED
 
• Obtain a PTIN from the IRS
 
• Complete 80 hours of tax training courses with at least a 75% passing grade, and
 
• Pass a competency examination

You apply online.

Should you enter the IRS filing season program?

The IRS does not license tax return preparers or impose any educational or other requirements on them. Why? Because it's not legally authorized to do so. But the IRS does have a voluntary registration program: the Annual Filing Season Program.  To join this program, you must have a PTIN and complete 18 hours of tax continuing education. This program includes a six-hour federal tax law refresher course with the test.  After completing these requirements, you'll receive an Annual Filing Season Program Record of Completion certification from the IRS.  You'll also get listed in an IRS online database of tax preparers. This record is officially called the Directory of Federal Tax Return Preparers with Credentials and Select Qualifications. Being listed in the directory can help you get business.  In addition, Annual Filing Season Program participants have a limited right to represent their clients before the IRS. They may do so before revenue agents, customer service representatives, and similar IRS employees, including the Taxpayer Advocate Service.  For more information, refer to the IRS Annual Filing Season Program web page.