How to become a tax preparer

As the COVID-19 pandemic made people evaluate their options for remote jobs, entrepreneurship, and freelance work in the face of mass layoffs, tax preparation has become a particular field of interest as they explore new careers.

Should I become a tax preparer?

Outlook for the tax preparer field is looking positive, as the Bureau of Labor Statistics estimates that the field will experience 4%-7% job growth between 2021 and 2031. As our taxation environment continues to grow more complex, the tax preparation field continues to thrive.

Here are other reasons to consider a tax preparation career:

• Easy entry. The tax preparation field is easy to enter compared to other options such as becoming a paralegal or executive assistant, which frequently requires more coursework and experience before you will be hired. You only need to be 18 years old to get a tax preparer identification number (PTIN), and no formal education is required unless you plan on becoming a certified public accountant (CPA) or attorney. There are no higher education levels required to become an enrolled agent (EA). However, EAs must pass a three-part test on taxes and maintain tax knowledge with continuing education in taxes requirements.
• Has flexible and remote options. Many tax offices will require you to work face-to-face but after the COVID-19 era, many large and small tax firms alike now offer hybrid work options or fully remote positions, which makes them ideal for people with disabilities and/or caregiving responsibilities and thus a more pressing need to work from home.
• High growth potential with and without a college degree, and additional licensing. Gaining experience through large tax companies like Jackson Hewitt provides an excellent steppingstone for a more stable and lucrative career in the taxation field. If you excel as a tax preparer, you may be able to go on to become an EA, tax court practitioner, CPA, or tax attorney among other types of related careers, which leads to higher-paying job and entrepreneurship opportunities.

What does a professional tax preparer do?

As the name implies, a professional tax preparer prepares income tax returns for compensation. The types of returns will vary by the firm and the types of clients that they serve: for instance, the large tax firms such as Jackson Hewitt and H&R Block service the average taxpayer, the "Big 4" CPA firms focus primarily on large corporations and incredibly high net worth individuals and small tax offices are more likely to serve small businesses and individuals of varying income brackets and professions.

Some self-employed tax professionals and small practices may focus strictly on specialized areas like payroll and small pension plans.

Common job duties of tax preparers often include:

• Filing current and past due federal and state tax returns for clients
• Communicating with the IRS and state tax authorities
• Organizing books and records
• Counseling clients on income tax matters throughout the year
• Reconciling books with tax returns, if serving business clients
• Filing tax forms that are not tax returns, such as business tax ID applications

What is required to earn a tax preparation certification?

Currently, there is no federal requirement to meet before becoming a tax preparer. However, the IRS does maintain a program for enrolled agents that recognizes tax professionals who have passed an in-depth test on taxes and complete courses in taxes and ethics in taxation and maintain their PTIN annually. In addition, some states have their own regulations to certify tax preparers that include education, continuing education, and practitioner identification number requirements. Additionally, firms may institute their own educational and training requirements, which may be as simple as attending continuing education programs, or a comprehensive program like Jackson Hewitt’s Tax School.

If you prepare tax returns for compensation, as the employee of a firm or on a freelance or entrepreneurial basis, you do need a PTIN in order to practice, regardless of your education and credentials.

Education

In order to get a PTIN and prepare tax returns, you do not need formal education. Most tax preparers who are currently not enrolled in college will seek tax preparation-specific instruction, such as the comprehensive tax law education covered in Jackson Hewitt's program.

Tax preparers on the collegiate track that are considering becoming CPAs and attorneys, will usually have at least one or two courses on tax law in their curriculum. Some universities offer MTAX, or Master in Taxation, programs in addition to minor concentrations in the accounting department.

Many tax preparers enrolled in college still receive outside continuing education from programs like Jackson Hewitt if their collegiate programs do not provide enough comprehensive training for the job, and only cover basic or isolated tax practice areas with little or no practical software training.

In order to become, and maintain their EA status, individuals must pass a three-part test on tax law and regulations and receive 16 hours of tax education and ethics in taxation annually. An EA must also maintain their PTIN annually.

Skills

It's often assumed that you need strong math skills to become an adept tax professional. While math skills certainly don't hurt financial professionals, tax preparation requires even stronger people and problem-solving skills.

The education that you receive in the Jackson Hewitt program will give you the knowledge needed to prepare tax returns. But how do you know how to get all of the information that you need out of the client without confusing them or bombarding them with questions and information? How will your communications with the IRS and other tax authorities differ from the way that you communicate with clients?

The ability to diligently fact-check with authoritative sources like the internal revenue code and regulations and tax court outcomes is necessary when dealing with more complex tax matters. But even when you are just starting out, knowing how to do tax research is a valuable skill (there are even tax professionals who get paid solely to do tax research for other tax professionals!)

Tax preparer credentials and qualification types

When you start your tax preparer career with a PTIN and no credentials, you are what the IRS refers to as an "unenrolled preparer," meaning you cannot speak to the IRS concerning tax returns, including your own clients’. Credentialed tax professionals described below have more representation powers to discuss any of their clients' tax matters:

• EA: EAs are licensed directly by the IRS. There are no requirements for a college degree, or even some college courses, to become an EA. Prospects must pass a comprehensive 3-part exam on tax rules and regulations, practical applications, ethics in taxation, and e-file along with a background check. EAs must maintain an active PTIN annually and be sure to complete 72 hours of continuing education over a three- year enrollment cycle including 2 Ethics in Taxation hours each year. Former IRS agents with enough experience can become EAs without needing to take the exam. Former IRS agents are subject to the same annual and tri-annual requirements to maintain their EA status.
• CPA: CPAs must pass the four-part uniform CPA exam in all areas of financial accounting and regulation, which includes some taxation. Each state has its own licensing board for CPAs, some require a Master's degree or to work a specific number of hours under an existing CPA's supervision before licensure is granted. You should carefully check your state's requirements to ensure your education and employment will count.
• Attorney: Attorneys can come from a variety of backgrounds and must pass the bar exam in their state, along with a background check. Some attorneys focus strictly on taxation and business, while others focus on family and elder law and tax matters are often part of their cases.
• Annual Filing Season Program Record of Completion Holder (AFSP): Individuals who meet the annual education requirements, pass a tax test approved by IRS, and maintain an active PTIN may apply to become an AFSP. These tax preparers are able to represent their clients to the IRS as long as they were an AFSP when they prepared the tax return and are an AFSP when IRS has questions or changes. An AFSP has very limited representation ability.

EAs, CPAs, and attorneys must take continuing education every year (or in the case of EAs, 72 hours on a three-year cycle) in order to maintain their credentials. Some Jackson Hewitt programs may satisfy these requirements.

How do I get an IRS PTIN?

You can get a PTIN for the tax year in question by creating an account on the IRS' PTIN online portal and entering your relevant personal and business information.

Additional identity verification is required if you never filed a tax return before or it has been four years since you last filed a tax return.

State level certification requirements for tax professionals

Many states and the federal government are considering requiring credentials for tax preparers. However, there are cuurrently only seven states regulating tax preparers:

• California: Unless you are an EA, CPA, or attorney, you must take a state-approved 60-hour course and carry a $5,000 bond in addition to taking 20 hours of continuing education every year that includes 10 hours on federal tax law, three hours on updates, two on ethics, and five on state tax law.
• Connecticut: Unless you are an EA, CPA, or attorney, you must obtain a biannual permit that costs $100 and have at least a high school diploma in order to practice.
• Illinois: Illinois does not have exam or permit requirements, but they do require paid tax preparers to put their PTINs on Illinois tax returns, and authorizes the state to bar and fine unenrolled tax preparers if they have good cause.
• Maryland: Unless you are an EA, CPA, or attorney, you must have a high school diploma or GED in addition to 80 hours of tax law education and achieving at least 70% on the state's tax law exam. This exam costs $65 and must be completed every two years. Prior to taking the Maryland state tax law exam, you must complete at least 16 hours of continuing education and have a valid PTIN. Federal, state, and local government employees are exempt from this requirement if they perform tax return duties.
• Nevada: Nevada requires document preparation services to register with the state, and this includes tax preparers. CPAs, financial planners, and some attorneys are exempt but EAs were not specified. Tax preparers need to register with the state for $50 and renew every year for $25, but also have a $50,000 surety bond or cash bond on file with the Nevada Secretary of State.
• New York: Unless you are an EA, CPA, or attorney, you must have a high school diploma or GED, be at least 18 years old, and complete at least four hours of continuing education every year if you prepare at least 10 or more tax returns within New York state.
• Oregon: Oregon requires that tax preparers complete 80 hours of tax law education, pass a state tax law exam with at least a score of at least 75, and renew this license every year on September 30. Most credentialed tax and financial professionals and attorneys are exempt, along with the employees of these professionals.

IRS e-File requirements for tax preparers

An Electronic Filing Identification Number (EFIN) is required if you plan on electronically filing tax returns for your clients, if you have your own practice or you are a co-owner of the firm (5% or more interest in a partnership). Most rank-and-file employees of tax offices with no ownership stake do not need to get an EFIN.

Your EFIN application comes after you apply, and are approved, to be an IRS e-file provider. It is free to apply and you have to get your digital fingerprints through the IRS approved vendor and pass a background check. You cannot transfer your EFIN to other firms or individuals. For more information check out Frequently Asked Questions: E-file Requirements for Specified Tax Return Preparers on irs.gov.

What is an AFSP Tax Preparer?

The Annual Filing Certification Program (AFSP) is a voluntary program for unenrolled tax preparers where they can demonstrate they've participated in continuing education in federal tax law and updates.

It is not for EAs, CPAs, attorneys, and other credentialed professionals because they are already mandated to receive continuing education every year and passed a rigorous licensing process. AFSP is designed for tax preparers who do not have these credentials, may be in the process of receiving them, and want to demonstrate to potential clients, employers, and universities that they are taking initiative to educate themselves and stay up to date on tax law changes.

How long does it take to become a tax preparer?

The amount of time it takes to become a tax preparer is based on the length of time needed for you to learn the basic of income taxes. You can be a tax preparer before you become an EA, CPA, or attorney.

Is it hard to become a tax preparer?

Ultimately, it depends on the types of skills you possess and how well you can comprehend tax law and its constant changes.

Becoming a tax preparer is challenging due to the amount of information you need to learn. Some find learning taxes easier once they get used to them, while others prefer the more people-oriented aspects of the job such as conducting tax interviews and organizing information received from the clients.

The proper training to become a tax preparer is not as time-consuming as becoming a CPA, but if you plan on becoming a credentialed professional who can command higher pay, it will be a longer and more difficult journey but a more rewarding one.

Interested in becoming a professional tax preparer?

Does this sound like the job for you? Are you ready to begin your journey towards becoming a professional tax preparer? Learn more about Jackson Hewitt’s tax preparation classes.

About the Author

Jo Willetts, Director of Tax Resources at Jackson Hewitt, has more than 35 years of experience in the tax industry. As an Enrolled Agent, Jo has attained the highest level of certification for a tax professional. She began her career at Jackson Hewitt as a Tax Pro, working her way up to General Manager of a franchise store. In her current role, Jo provides expert knowledge company-wide to ensure that tax information distributed through all Jackson Hewitt channels is current and accurate.

Jackson Hewitt Editorial Policy