California Tax Preparer Bond

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What is a California Tax Preparer Bond?

A California Tax Preparer Bond or CTEC Bond is a type of license and permit bond required for a tax professional to become a registered tax preparer in the state of California. The surety bond protects the public against potential regulatory and compliance violations made by tax professionals and ensures that their practices are in adherence to all applicable laws and regulations.

A California Tax Preparer Bond essentially provides financial recourse for any party that is damaged by the tax preparer’s misstatement, misrepresentation, fraud, deceit or any unlawful acts or omissions while acting in their role as tax preparer. It also covers the same acts from employees and associates of the tax preparer.

Do you need a California Tax Preparer Bond?

According to the Bureau of Labor Statistics, there are over 12,000 tax preparers in the state of California. The California Business and Professions Code 22250 requires all tax preparers to obtain a California Tax Preparer Bond in the amount of $5,000. The code says:

“(1) A tax preparer may not conduct business without having a current surety bond in the amount prescribed by this section.”

Additionally, the code requires that a company employing tax preparers provides a California Tax Preparer Bond for each of their employees that is serving in the role. For example, a company with five tax preparers will need to obtain five tax preparer bonds. Alternatively, the company could obtain a single bond that covers all five tax preparers for $5,00o each. This would require a total bond of $25,000.

Regardless of the number of tax preparer employees, the maximum bond amount that an employer needs to obtain is $125,000.

This is an image of a California road sign. Beside it, an image of tax prep. A text box shows the required amount for a California Tax Preparer Bond.

Limitations to the Tax Preparer Bond Amount

Regardless of the amount of the bond, the most the surety bond company will have to pay in claims for any single tax preparer is $5,000. This is regardless of the dollar amount of claims, number of claims filed, or years that the surety bond company has written bonds for that tax preparer.

The bond also shall not include payment of any civil penalties, fines, attorneys’ fees, or any other cost provided by statute or regulation.

What is a Tax Preparer Bond in California and How Does it Work?

California Tax Preparer Bonds protect against the unlawful acts, omissions, misrepresentations, fraud and dishonesty of the tax preparer and their employees while acting in that role. The bond must be written for the benefit of the people of the State of California. It also guarantees that the tax preparer will act according to Division 8 Chapter 14 of the California Business and Professions Code.

The tax preparer is the principal on the bond. They are the party guaranteeing to uphold the laws and codes of California and act honestly. The State of California is the obligee. This is the party benefiting from the bond and the tax preparer’s promise to act accordingly. The surety is a third-party bond company who is providing a financial guarantee that the taxpayer will fulfill their duties in an acceptable manner.

Not Insurance

A California Tax Preparer Bond is not insurance. If a claim is made against the bond, the surety bond company can seek reimbursement for any payments under the indemnity agreement. Tax preparers should avoid claims. More can be read about the differences between surety bonds and insurance.

What is the cost of a California Tax Preparer Bond?

The cost of a California Tax Preparer Bond is 2% per year for most tax preparers. For a standard $5,000 California tax preparer bond, this would be $100. For a company with ten tax preparers on a single bond, this would cost $1,000 for the $50,000 bond amount.

The bond premium will be due each year that the bond is in force. Some bond companies will provide discounts of up to 30% for tax preparers who purchase multiple years in advance.

A person preparing taxes in the background. A black text box shows the cost of a California Tax Preparer Bond. A black outline of California on each side.

How to obtain a California Tax Preparer Bond?

California Tax Preparer Bonds are very easy to obtain. They can be purchased online without a credit check. The tax preparer must simply provide their name and address to purchase the bond.

Is it Possible to Obtain a California Tax Preparer $5,000 Bond with Bad Credit?

Yes. California Tax Preparer Bonds do not require a credit check to be purchased, so any tax preparer may purchase them regardless of credit.

Canceling a California Tax Preparer Bond

A California Tax Preparer Bond can be canceled anytime by providing 30-day notice to the California Tax Education Council. However, the surety bond company is still liable for claims that occurred during the cancelation period and while the bond was active.

The tax preparer will need to file a replacement bond within the 30-day period, or they must cease business until a new bond is filed.

Alternatives to a California Tax Preparer Bond

A tax preparer may not submit deposits and other financial instruments in lieu of a surety bond. There are some exceptions such as those in Section 995.710 of the Code of Civil Procedure.

Errors and Omissions Insurance

As said above, a surety bond is not insurance. California Tax Preparers may want to consider protecting themselves against lawsuits by purchasing insurance such as errors and omissions (E&O) insurance. Where a bond protects the customer, these products help protect the tax preparer and can provide money for defense or lawsuits made against the tax preparer.

Other Bonds

California Tax Preparers may also need other surety bonds such as Notary Bonds. These bonds can also be purchased online at the California Surety Bond Page. Tax preparers can also read all about surety bonds, including many frequently asked questions by visiting our Surety Bond Guide.

Steps to Becoming a Licensed Tax Preparer in California

This is an image of the 3 steps to becoming a licensed California Tax Preparer. In the background are tax forms.

Step 1 – Complete an Online Application for New Preparers

  • All tax preparers must complete an application
  • The application process requires a $100 fee and a $2 processing fee. 
  • Completing the application does not guarantee registration. Once the background check is approved, an applicant can proceed to registration. 
  • The applicant has the option to start the required 60-Hour Qualifying Education (QE) Course before beginning the Online Application. However, if the applicant does not pass the background check and Live Scan, they will not be allowed to register.

Step 2 – Complete a Live Scan Process

  • All applicants must complete a background check and fingerprinting process. 
  • Each applicant will need to login to their account, download a Live Scan Form, complete the fingerprint process and then send it to the California Department of Justice. Here you can search for Live Scan Locations.
  • The California Department of Justice will automatically send the applicant’s results to CTEC for review. This process takes 2 – 8 weeks.

Step 3 – Wait for CTEC Approval or Denial of Live Scan Results

  • The CTEC will send approvals via email and declinations via the U.S. Postal Service.
  • If approved, the applicant may proceed to registration.

California Tax Preparer Registration Process

This graphic shows the 4 steps to the California Tax Preparer Registration Process and what is needed.

Step 1 – Take a 60-Hour Qualifying Education Course

Every applicant must complete 60 hours of approved education by a CTEC Approved Provider. If you were previously registered with CTEC and let your registration expire, you must retake the 60-hour qualifying education course from an approved education provider, pass a background check, and register as a new applicant. 

Step 2 – Obtain a Personal Tax Identification Number from the IRS

All Applicants must obtain a Personal Tax Identification Number (PTIN) from the IRS. This number will be needed to complete the registration process. A number can be obtained by visiting the IRS Website

Step 3 – Obtain a California Tax Preparer Bond

Each applicant will need to purchase a California Tax Preparer Bond discussed above. Once you obtain the bond, you will need to upload a copy of it to your CTEC account. You will need this bond before you complete your registration.

Step 4 – Complete the Online Registration and Submit Payment

Once the tax preparer has all the items listed above including your 60-hour education, PTIN and Tax Preparer Surety Bond, the applicant may go online and finish their registration. Payment will also be required at this time. 

Summary

California Tax Preparer Bonds are needed by all individuals doing taxes in the state. Fortunately, these bonds are very inexpensive and can be purchased online in minutes. Contact the surety bond experts at Axcess Surety today if you have any questions.

Vice President at Axcess Surety
Vice President of Axcess Surety. Surety Bond and financial expert dedicated to helping contractors, businesses and individuals understand and obtain surety bond credit.
Josh Carson, AFSB
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