What is a tax preparer bond?
Tax preparer bonds are legally binding agreements between three parties: non-exempt tax preparers, the state government agency responsible for registering and licensing tax preparers, and a surety company.
The state regulatory agency is the Obligee and establishes the obligations that the Principal (the tax preparer) must follow. The surety company issues the bond guaranteeing the performance of the tax preparer. As of 2021, California and Nevada are the only states that require surety bonds for tax preparers.
Why do you need a tax preparer bond?
Tax preparer bonds are required by the California Tax Education Council (CTEC) and Nevada Secretary of State before non-exempt tax preparers are eligible for a license to work on clients’ tax returns. These are preparers who have the necessary skills but do not possess a CPA or EA license. Certified Public Accountants (CPAs) and Enrolled Agents (EAs) are not required to post a tax preparer bond as they already undergo an extensive licensing process and are held accountable by the Internal Revenue Service (IRS).
Tax preparer bonds provide protection to the tax preparer’s clients in the event of fraud, misrepresentation, theft, or negligence on the part of the preparer. When the surety company issues the bond, they are providing the state agency a guarantee that the clients of a registered tax preparer will receive payment for financial losses resulting from a violation of the statutes and regulations set forth by the tax preparer license.
If the tax preparer fails to meet the obligations set out by the state agency, the surety will pay out damages up to the bond amount. The preparer is liable for the losses and is legally required to reimburse the surety company for any damages paid under the bond.
How much does a tax preparer bond cost?
Tax preparer surety bond costs vary depending on the total bond amount and the premium rate. The state agency sets the required bond amount and the surety company determines the premium rate, which is the percentage of the total bond amount paid as the premium.
Tax preparer bonds in the State of Nevada require a credit check. Applicants with good credit generally receive the lowest rates, however, bad credit will not prevent you from securing an auto dealer surety bond. EZSurety still offers competitive rates to individuals with low credit scores or other financial issues.
Tax preparer bonds issued in the State of California generally do not require a credit check, however, it is the surety company’s decision how to underwrite the bond. EZ Surety has issued California tax preparer surety bonds for premiums as low as $25.