Which states require a tax preparer bond
| State | Bond amount | Required for | Where it's filed |
|---|---|---|---|
| California | $5,000 per preparer | CTEC registration (unless exempt) | California Tax Education Council (CTEC) |
| Nevada | $25,000 for an individual registrant (more for businesses with several registrants) | Document preparation service registration (NRS 240A) | Nevada Secretary of State |
| All other states and DC | None | — | — |
| IRS (PTIN, EFIN, AFSP) | None | — | — |
California: the $5,000 CTEC bond
To prepare returns for pay in California you must register with the California Tax Education Council (CTEC) unless you're exempt. One of the requirements is a $5,000 tax preparer surety bond, bought from a surety company before you register and kept in force as long as you're registered.
Under California law the surety's liability is capped at $5,000 per preparer. An employer can bond each preparer separately or carry one blanket bond, and the total required for an employer and its preparers is capped at $125,000. The bond doesn't pay civil penalties, fines or attorneys' fees.
CPAs, enrolled agents, attorneys and certain bank and trust officials are exempt from CTEC registration, and so from the bond. The bond is one of five CTEC steps. The others are a 60-hour course, a PTIN, Live Scan fingerprinting and a $35 yearly fee. See how to become a tax preparer in California.
Nevada: the $25,000 document preparer bond
Nevada has no state income tax, but it treats paid tax preparers as document preparation services under NRS Chapter 240A, even for federal returns. Registration with the Nevada Secretary of State requires a $25,000 surety bond for an individual registrant. Businesses with several registrants carry larger bonds, up to $200,000. Registration costs $100 and renews every year for $50.
CPAs and Nevada attorneys are exempt. See how to become a tax preparer in Nevada.
What a tax preparer bond covers
A surety bond is a three-way promise: you (the principal), the surety company, and the state on behalf of your clients. If a client suffers a loss because of your fraud, dishonesty, misstatement, unlawful act or failure to provide services you were paid for, they can file a claim against the bond, up to its amount.
A bond isn't insurance for you. If the surety pays a claim, you owe the surety that money back under the indemnity agreement you sign when you buy the bond. The bond protects your clients, not your business.
Bond vs. errors and omissions insurance
A bond protects your clients; E&O insurance protects you. Full guide: tax preparer insurance.
| Surety bond | Errors & omissions (E&O) insurance | |
|---|---|---|
| Protects | Your clients | You and your business |
| Required? | Only in California and Nevada | Not required by the IRS or any state, but widely carried |
| Who pays the claim in the end | You (you repay the surety) | The insurer, after your deductible |
| Covers honest mistakes? | Only up to the bond amount, and you repay it | Yes, that's its main purpose |
| Typical cost | Low: a small yearly premium on the bond amount | Higher: priced on your volume and coverage limits |
How much a tax preparer bond costs
You don't pay the bond amount. You pay a yearly premium, a small percentage of it. Bond brokers advertise the California $5,000 bond from about $25 for one year, with multi-year terms costing less per year. Some price it at around 2% a year (about $100). The $25,000 Nevada bond costs more, and your credit history can affect the price.
Get two or three quotes before you buy. Most tax preparer bonds are issued without a credit check, though a surety may run one.
How to get a tax preparer bond
- 1. Confirm you need one. Check your state in our requirements by state table, and whether you're exempt (CPAs, attorneys and, in California, enrolled agents usually are).
- 2. Get quotes from licensed surety companies or bond brokers that write bonds in your state.
- 3. Buy the bond in the exact amount and form your state requires. The bond names the state as obligee.
- 4. File it with your registration. In California the bond must be in place before you register with CTEC. In Nevada it goes with your Secretary of State application.
- 5. Keep it in force. A lapsed bond can suspend your registration, so renew it before it expires.
Tax preparer bond FAQ
Do tax preparers need to be bonded?
Only in California ($5,000, for CTEC registration) and Nevada ($25,000, for document preparation service registration). The IRS doesn't require a bond for a PTIN, an EFIN or the Annual Filing Season Program.
How much is a $5,000 tax preparer bond in California?
Bond brokers advertise it from about $25 for a one-year term, with multi-year terms costing less per year. Some price it at around 2% of the bond amount a year. Get quotes before you buy.
Does the IRS require a bond for an EFIN?
No. The IRS e-file application has a suitability check and, for non-credentialed principals, fingerprinting, but no bond. See how to get an EFIN.
Is a tax preparer bond the same as insurance?
No. A bond protects your clients, and you repay the surety for any claim it pays. Errors and omissions insurance protects you and pays claims for honest mistakes.
Who is exempt from the California tax preparer bond?
CPAs, enrolled agents, attorneys and certain bank and trust officials are exempt from CTEC registration and its bond. Confirm with CTEC.
What happens if a claim is made against my bond?
The surety investigates and, if the claim is valid, pays the client up to the bond amount. You then owe the surety that amount under your indemnity agreement.
Sources
Program rules change; confirm current requirements with the IRS and your providers.