How Much Do Tax Preparers Make Per Client Ever wondered what a tax preparer does and what qualifications are required for this role? This article aims to provide insights into the world of tax preparers, their earning potential, and the various factors influencing their income.
Understanding the Role of a Tax Preparer
Tax preparers play a crucial role in the United States’ complex tax landscape. They ensure that companies and individuals comply with tax regulations, avoiding penalties and audits by the Internal Revenue Service (IRS). This guide delves into the question: “What is the average salary of a tax preparer?” It covers salary trends from multiple angles, including education, experience, location, industry, and more.
Earnings of Tax Preparers
As of May 2021, the U.S. Bureau of Labor Statistics (BLS) reported an average annual income of slightly over $51,000 for tax preparers. However, data from Payscale in September 2022 indicated a somewhat lower average of approximately $48,710 per year.
Payscale also tracks additional income sources, such as performance bonuses, profit-sharing arrangements, and commissions. According to Payscale, these supplementary income streams can boost a tax preparer’s total earnings by around $1,800 annually.
The range of tax preparer salaries is notably wide. Tax preparers at the 10th percentile earned a base salary of just $24,000 per year, while those at the 90th percentile commanded base salaries of $73,000 per year. This variance highlights the potential for differing earning levels in this profession.
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Tax Preparer Compensation Based on Education
Tax preparers can pursue various educational paths to enter the field. Unlike some professions, tax preparers don’t have strict educational or certification requirements. Many tax preparers come from academic backgrounds in fields such as accounting or finance.
Professionals who prepare federal tax returns for compensation require a Preparer Tax Identification Number (PTIN) from the IRS. Enrolled agents, who are eligible to perform tax preparation work for clients, must also hold a valid PTIN. Their expertise in tax code regulations should encompass an in-depth understanding of filing practices, knowledge of federal, state, and local tax deductions, rebates, credits, and up-to-date awareness of tax code changes and their implications for individual cases.
Here’s a summary of the average pay rates associated with common credentials held by tax preparers:
Experienced tax preparers often benefit from their accumulated knowledge and insights, leading to improved job performance and higher salaries. Exceptional tax preparers who help clients uncover significant savings may also qualify for valuable bonuses.
Salaries Based on Experience
The table below presents average base salaries earned by tax preparers at different career stages, as reported by users. Median base salaries typically peak during the midcareer phase. However, at the experienced and late-career stages, the 90th percentile base salaries are higher than at the midcareer level.
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Location Influence on Salary
Employers operating across diverse geographic regions often implement location-based pay strategies. These strategies involve adjusting salaries based on the cost of living in different areas. Workers residing in high-cost regions receive higher salaries, while those in more affordable areas earn less.
Location-based pay trends reflect broader labor market dynamics. Employers tend to offer higher salaries to employees living in areas with elevated living costs, while lower-cost regions typically feature lower salaries.
Local labor market conditions can also impact tax preparer salaries. In areas where demand for qualified tax preparers is high, salaries tend to rise due to increased competition among employers.
The following tables highlight the highest-paying states and metropolitan areas for tax preparers, according to BLS data:
Promising Locations for Tax Preparers
Between 2021 and 2031, the Bureau of Labor Statistics (BLS) anticipates that the demand for tax preparers will match the average growth rate for all professions, projected at +4%. However, BLS coverage of the tax preparer occupation is limited. For more insights, consider BLS projections for related professions over the same period. These include:
- Accountants and auditors: +6% projected employment growth
- Bookkeeping, accounting, and auditing clerks: -5% projected employment decline
- Tax examiners and collectors: -7% projected employment decline
Projections Central, a project supported by the U.S. Department of Labor with technical assistance from the BLS, estimates a modest 1.6% increase in tax preparer employment nationwide from 2020 to 2030. However, certain regions are expected to experience significantly higher growth rates. The following section provides more details:
While tax preparers serve clients nationwide, states with large populations, strong economies, and a prominent corporate presence tend to employ the highest numbers of these professionals.
The growing trend of remote and hybrid work arrangements may impact the field of tax preparation. Tax preparers can effectively assist clients online, expanding their potential client base and living options. However, they may need to invest in information security as remote work involves clients sharing sensitive financial data.
Projections Central predicts that demand for tax preparers will outstrip the BLS’s national growth rate of +4% for 2021-2031 in certain areas. For example, the Utah labor market is expected to witness a remarkable 37% surge in tax preparer demand from 2020 to 2030. Similar substantial gains are projected for Colorado, Wyoming, Massachusetts, Florida, and several other states.
In terms of metropolitan areas, the largest urban centers in the United States are among the top employers of tax preparers. Notably, the Washington, D.C. area, with its concentration of federal government agencies, exhibits strong demand in the job market.
In 2021, the BLS estimated the total number of tax preparers in the U.S. at 83,190 professionals. Of these, over 79,000 were employed in accounting, tax preparation, bookkeeping, and payroll services, representing about 95% of all tax preparers nationwide. The remaining tax preparers worked for consulting firms or offered independent services, leveraging their experience and established client base.
The table below summarizes the average tax preparer salary by industry, with a focus on the five highest-paying sectors. It’s important to note that the number of tax preparers in these industries is relatively small, contributing to intense competition for available positions.
Among these top five employing industries, the largest category, accounting, and tax preparation services, offers the lowest average tax preparer salaries. This trend reflects supply-and-demand dynamics, where a high concentration of a particular skill in a specific labor market tends to depress wages.
FAQs About Tax Preparer Income
- What is the average salary of a tax preparer? In 2021, the BLS reported an average tax preparer salary of $51,080 per year. As of September 2022, Payscale quoted a slightly lower average base salary of around $48,710 per year. However, Payscale notes that bonuses can significantly increase this figure.
- What are the highest-paying tax preparer jobs? According to Payscale, tax preparers at the 90th percentile earn average base salaries of $73,000 per year.
- Which state is the best for tax preparers in terms of salary? Tax preparer salaries are highest in Alaska, Colorado, Massachusetts, California, and Texas. Projections Central expects the highest employment growth rates from 2020 to 2030 in Utah, Colorado, Wyoming, Massachusetts, and Florida.
- Which industry offers the best salary for tax preparers? As of 2021, over 95% of U.S. tax preparers work in sectors providing accounting, payroll, bookkeeping, and tax preparation services. However, industries such as enterprise management, legal services, and insurance tend to offer higher average salaries.
- Is tax preparation a promising career choice? Businesses and individuals require assistance with tax returns regardless of economic or labor market conditions. These factors contribute to stable prospects for qualified tax preparers.
This comprehensive guide provides valuable insights into the earning potential and various factors affecting the income of tax preparers in the United States. Whether you’re considering a career in tax preparation or are simply curious about this profession, this information can help you make informed decisions regarding your financial future.