The business world needs the specialized expertise of tax preparers. But did you know that based on their credentials, tax preparers fall into 5 categories? In this article, I’ll review each type and explain their differences. I’ll also discuss the pros and cons of pursuing each according to your career goals.
The IRS allows anyone with a PTIN, or a Preparer Tax Identification Number, to prepare federal tax returns for compensation. But beyond that basic requirement, the categories of tax preparers vary according to experience, education, and overall level of expertise.
Tax preparers fall into 5 categories:
Different kinds of tax preparers have different abilities to represent their clients in front of the IRS, which are referred to as “representation rights.” The only tax preparers with unlimited representation rights are CPAs, Enrolled Agents, and tax attorneys. With unlimited rights, they can speak on any matter for their clients with any IRS office. So, they might deal with federal tax issues as diverse as audits and appeals to payment disputes.
If you have a PTIN, then legally, you are authorized to prepare federal individual or business tax returns for pay. Many taxpayers rely on these undesignated professionals during the annual filing season.
Although there are some exceptions, anyone who prepares tax returns or claims for refunds for compensation must have a PTIN. Since the IRS assigns PTINs, your number will be valid regardless of the state where you will work.
Legally speaking, obtaining a PTIN is the only credential you need to become an undesignated tax return preparer, which can have very low entry barriers. So even without much education or previous accounting experience, you can apply for tax preparer positions after you’ve received your PTIN.
However, the hourly pay rate for these undesignated positions is usually not much more than the minimum wage. And, you might have to work a lot of evenings and weekends, especially during tax season. So, I recommend that for more job satisfaction, you look into one of the other tax preparer paths discussed in this article.
If you want to prepare tax returns for pay, you’ll need to apply for a PTIN. The IRS has made the PTIN application available online. It’s easy to complete and only takes about 15 minutes. Plus, the application is free—the IRS doesn’t charge a fee to get a PTIN.
According to the IRS regulations, some tax preparers, including EAs, must register for a PTIN. There are a few exceptions of federal forms that do not have to be prepared by a PTIN-holder, which the IRS has outlined in this short list.
The IRS started the Annual Filing Season Program (or AFSP) to encourage tax preparers to engage in continuing education (CE) and to be better prepared for the busy filing season. The program allows uncredentialled tax preparers to educate themselves through CE and reach higher levels of proficiency with tax forms and standards. CPAs, EAs, and tax attorneys rarely participate in the AFSP program.
The IRS has made the AFSP requirements fairly simple with just 3 steps.
The IRS adds all AFSP holders to the Directory of Federal Tax Return Preparers with Credentials and Select Qualifications. This public directory lists all tax return preparers with the AFSP credential plus tax attorneys and CPAs.
In addition to increased knowledge through continuing education, being listed the searchable IRS directory of federal tax preparers is one of the biggest benefits of the AFSP program. By pursuing this credential, you could increase your career standing. You’ll also signal potential employers that you took the initiative to become an AFSP holder.
However, you should note the limitations, too. AFSP holders only have limited rights to represent their clients for returns filed after December 31, 2015. An AFSP holder can represent their client if they prepared and signed their return, but only before certain IRS agents.
The IRS grants the enrolled agent, or EA, credential. In fact, it is the highest designation that the IRS gives to tax return preparers. An EA has high levels of federal taxation expertise. They have a deep understanding of complex tax collection issues, audits, and processes for appeals.
Enrolled agents must have high levels of tax expertise to pass the exam. Therefore, enrolled tax return agents are allowed to represent their clients before the IRS. And just like tax attorneys and CPAs, they have the privilege of unlimited practice rights.
To become an EA tax preparer, all candidates must these basic requirements:
Plus, tax preparer EA candidates must meet one of the following:
The EA tax preparer certification could be right for you if want to expand your tax expertise. Plus, if you want unlimited representation rights before the IRS, you should also look into becoming an EA. And don’t forget that unlike the CPA designation, the EA credential doesn’t have any specific education requirements to meet.
And keep in mind that EAs have the right to work in any US state or territory. Since the IRS is a federal agency, your EA credential is good all over the country. That’s one of the major differences between an enrolled agent vs a tax attorney or a certified public accountant, whose licenses are granted at the state level.
Certified Public Accountants have high levels of accounting and finance knowledge. They can also prepare tax returns. Each US state and territory has a Board of Accountancy that grants the CPA credential.
There are many benefits to becoming a CPA tax professional, including:
Since the CPA credential is granted at the state level, each Board of Accountancy institutes their own requirements to become a CPA. But in general, CPAs must meet the 3E’s of education, exam, and experience:
The CPA is a flexible credential. It allows you to enter diverse positions in accounting, auditing, and attestation. Plus, CPAs can also offer tax planning and tax preparation services. And the IRS has given them unlimited representation rights with the clients’ cases, and that gives you a lot of professional responsibilities.
However, if you want to travel or work in multiple states, remember that the CPA is granted by state-level authorities. So if you get your CPA license in one state, it might not be valid in another.
Tax attorneys are the fifth category of tax preparers. In addition to having unlimited representation rights with the IRS, they can also advise clients on diverse tax issues.
If tax attorneys have unlimited representation rights like CPAs and EAs, what sets them apart? Tax attorneys can represent their clients in Tax Court; CPAs and EAs cannot. Therefore, tax attorneys are unique in that respect.
To become a tax attorney, you apply for a license with your state court or its designee, like a state bar. The general requirements include:
Tax attorneys enjoy many benefits and privileges. They can work in corporate environments or open their own law firms. Plus, they can prepare tax returns and help clients with tax planning.
And unlike other tax preparers like CPAs and EAs, they can sit alongside their clients in tax court. So if the challenges of law practice intrigue you, I suggest looking into becoming a tax attorney. Of course, going to law school is a major investment of time and money. But passing the Bar is the only path to a career as a tax attorney.
As I’ve outlined, there are several paths to becoming a professional tax preparer. Each requires a different level of commitment in terms of experience and education. I suggest writing out your own career goals and seeing where these 5 types of tax preparer credentials fit in.
Here are some considerations:
Tax preparer salaries vary quite a bit based on their credentials, education, and clients. Although there are several sources for researching salaries, they lump tax professionals into different categories. But still, I can give you some estimates to help your career planning.
The US Bureau of Labor Statistics reports that undesignated tax preparers earn approximately $49K annually. According to payscale.com, that number is a little lower at $44K. Salary databases don’t differentiate for AFSP holders, so it’s hard for me to estimate how much your AFSP salary might increase once you have that credential in hand.
If you’re wondering how much do enrolled agents make in comparison to other preparers, they start around $42K when first entering the profession. By mid-career, they usually make somewhere in the mid-$50K range. Depending on their location and experience, they can expect to earn $60K-$75K by late career.
Most tax preparers find that just getting the EA credential yielded an annual increase of about $7,000. Imagine how that can add up over the course of a career.
CPAs usually make more than EAs with an average CPA salary at $66,287. But CPAs with tax experience tend to earn higher amounts as they move along in their career.
The 2020 Robert Half Salary Guide, the accounting industry’s guide to salary trends, reports that entry-level tax accountants make anywhere from $40K to $75+K. By the time they climb the ladder to director of tax services for their firm, CPAs could make as much as $216K
Tax attorney salaries can vary based on the size of their firm or practice, location, fees, clients, and caseloads. But most tax attorneys earn as low as $58K to $194K. But since attorneys often receive bonuses and many firms have profit-sharing programs, attorneys can make $200K or more.
There are many paths to becoming a tax preparer. Before you choose one, I suggest that you weigh the costs and time commitments compared to the potential benefits.
In particular, if you think the EA credential might be right for your career, I suggest enrolling in my free Enrolled Agent course. It will give you everything you need to start your EA career today.
I am the author of How to Pass The CPA Exam (published by Wiley), and I also passed all 4 sections of the CPA Exam on my first try. Additionally, I have led webinars, such as for the Institute of Management Accountants, authored featured articles on websites like Going Concern and AccountingWeb, and I'm also the CFO for the charity New Sight. Finally, I have created other accounting certification websites to help mentor non-CPA candidates. I have already mentored thousands of CPA, CMA, CIA, EA, and CFA candidates, and I can help you too!