Quick Answer: How much does tax preparer insurance cost?

$67 to $300 per month ($800–$3,600/year) for E&O coverage. Seasonal preparers can get policies starting at $67/mo with pro-rated premiums for part-year coverage.

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Why Tax Preparers Need E&O Insurance

Tax preparation is inherently risky. You're responsible for the accuracy of every return you file, and mistakes can cost clients thousands in penalties, interest, and lost refunds. Here's the reality:

1 in 5 tax preparers will face a professional liability claim during their career
Average E&O claim for tax preparers: $45,000–$120,000
IRS penalty exposure for preparer negligence: $1,000+ per return under IRC §6694
State penalties vary but can include license revocation and civil fines

Even if you do everything right, you can still be sued. A client who owes money to the IRS may blame you — and your E&O policy covers the legal defense even if the claim is baseless.

Tax Preparer Insurance Cost by Practice Type

Practice Type	Monthly Cost	Annual Cost	Notes
Seasonal preparer (individual returns only)	$67–$100/mo	$800–$1,200/yr	Pro-rated options available
Year-round sole preparer	$85–$150/mo	$1,000–$1,800/yr	Individual + business returns
Small tax firm (2-5 preparers)	$150–$300/mo	$1,800–$3,600/yr	Covers all staff preparers
Enrolled Agent (EA)	$85–$175/mo	$1,000–$2,100/yr	Includes IRS representation coverage
CPA doing tax prep + advisory	$100–$250/mo	$1,200–$3,000/yr	Broader coverage needed

What Tax Preparer E&O Insurance Covers

Core Coverage

Tax filing errors — Incorrect calculations, wrong filing status, missed credits or deductions
Missed deadlines — Late filings resulting in penalties, lost refunds, or expired elections
IRS audit defense — When your work triggers an IRS audit of your client
State tax errors — Incorrect state return filings
Preparer penalties — Defense against IRC §6694 and §6695 penalties
Client lawsuits — Legal defense when clients sue for any professional error
Regulatory proceedings — State licensing board complaints and investigations

Extended Coverage (Often Included or Available)

Prior acts coverage — Protects against claims from returns filed in prior years
Subpoena assistance — Covers costs of responding to IRS subpoenas related to your work
Identity theft response — When client data in your possession is compromised
Disciplinary proceedings — Defense before IRS Office of Professional Responsibility (OPR)
Innocent spouse representation — Coverage for claims arising from innocent spouse filings

What's NOT Covered

Your own tax penalties — Fines assessed directly against you for willful misconduct
Criminal prosecution — Intentional tax fraud or evasion
Guarantee of results — You can't guarantee a refund and then claim E&O when it doesn't work out
Bodily injury/property damage — Need general liability for that
Cyber breaches — Need separate cyber policy (though some E&O policies include limited cyber)

Carrier Comparison for Tax Preparers

Carrier	Starting Price	Best For	Seasonal Options
Hartford	$67/mo	Best overall value	Year-round (no pro-rated)
Hiscox	$75/mo	Solo preparers, easy online	Monthly billing, cancel anytime
CNA (AICPA)	$85/mo	AICPA/NAEA members	Association discounts
Travelers	$80/mo	Bundling with GL/BOP	Multi-policy discounts
Chubb	$125/mo	High-volume firms	Highest limits available

Hartford — Best Overall for Tax Preparers

Hartford is our top pick for tax preparers because of their competitive pricing and CPA-specific policy features:

Starting at $67/mo for solo preparers
Defense costs outside the limit — your coverage doesn't shrink when defending a claim
Regulatory proceedings coverage including IRS and state board defense
Prior acts coverage from policy inception
Disciplinary proceedings before OPR and state boards
Same-day binding for standard applications

Hartford's online application takes about 15 minutes and is tailored for tax professionals. They ask the right questions about return volume, client types, and services offered.

Hiscox — Best for Seasonal Preparers

Hiscox's monthly billing makes it ideal for seasonal preparers who don't want to pay year-round:

Monthly billing with no annual commitment
Simple online application — quote in 5 minutes
$0 deductible option for smaller practices
Broad definition of tax preparation services
Easy to pause and restart coverage

The caveat: claims-made policies need continuous coverage to protect against past work, so "pausing" coverage during the off-season creates a gap. If a client files a complaint in September about a return you prepared in March, and you paused coverage in May, you may not be covered. Keep this in mind.

CNA — Best for Association Members

CNA partners with the AICPA and NAEA (National Association of Enrolled Agents) to offer preferred rates:

5-10% member discounts through professional associations
Comprehensive tax preparer-specific policy form
Free risk management resources and CE credits
Subpoena assistance coverage included
Identity theft defense for client data

Travelers — Best for Multi-Policy Savings

If you need general liability, property, and E&O together:

10-15% multi-policy discounts
A++ AM Best rating (strongest financial strength)
Worldwide coverage available
Strong claims handling reputation

Chubb — Premium Option for High-Volume Firms

For tax firms handling thousands of returns or serving high-net-worth clients:

Highest available limits ($5M+)
Broadest coverage definitions
Claims-paying reputation is unmatched
Dedicated account team for larger firms

📊 Compare tax preparer insurance quotes side-by-side. Get quotes from all 5 carriers →

Seasonal vs. Year-Round Coverage

The Seasonal Preparer Dilemma

Many tax preparers only work January through April (or through October with extensions). Paying for year-round coverage seems wasteful. Here are your options:

Option 1: Year-Round Policy (Recommended)
Pay for 12 months of coverage even if you only prepare returns for 4-6 months. This ensures:

No coverage gaps for claims filed after tax season
Continuous prior acts date
Protection against extension-related claims
Lower per-month cost when annualized

Option 2: Monthly Billing with Gap Awareness
Some carriers (Hiscox) allow monthly billing. You can technically stop paying during the off-season, but:

Claims filed during the gap period won't be covered
You lose your prior acts date
You're essentially starting a new policy each season
Long-term, this costs more due to resetting the claims-made step-up

Option 3: Part-Time/Seasonal Policy
A few specialty carriers offer pro-rated seasonal policies. These are less common but worth asking about if you prepare fewer than 100 returns per year.

Our Recommendation

Stick with year-round coverage. At $67-$85/mo, the annual premium of $800-$1,020 is a small price for continuous protection. The risk of a coverage gap during the off-season — when clients receive IRS notices about returns you filed months ago — isn't worth the savings.

Common Tax Preparer E&O Claims

Claim 1: Wrong Filing Status — $35,000

A preparer filed a client as "Head of Household" when they should have been "Married Filing Separately." The IRS assessed $28,000 in additional tax plus $7,000 in penalties and interest. The client sued the preparer. E&O covered the $22,000 settlement and $13,000 in legal fees.

Claim 2: Missed Education Credit — $18,000

A preparer failed to claim the American Opportunity Tax Credit for a client's dependent. Over 4 years of returns, the client lost $10,000 in credits. With penalties and interest, the claim totaled $18,000. Settled for $14,000.

Claim 3: Late Filing Penalty — $52,000

A tax firm missed the October extension deadline for a business client. The client owed $180,000 in taxes, and the late filing penalty was 5% per month (capped at 25%). Total penalties: $45,000 plus $7,000 in interest. The E&O policy covered the full $52,000.

Claim 4: Incorrect Depreciation — $125,000

A CPA incorrectly calculated depreciation on a commercial property over 5 years. When the client sold the property, the depreciation recapture created a $125,000 tax liability the client wasn't expecting. The E&O policy covered the $90,000 settlement and $35,000 in defense costs.

Claim 5: IRS Audit Triggered by Preparer Error — $28,000

Aggressive deductions on a Schedule C triggered an IRS audit. The client's deductions were disallowed, resulting in $20,000 in additional tax and penalties. The client blamed the preparer. E&O covered $18,000 settlement and $10,000 in legal defense.

Tax Preparer Insurance for Enrolled Agents (EAs)

Enrolled Agents have unique insurance needs because they have unlimited practice rights before the IRS. This means:

Higher exposure — EAs can represent clients in audits, appeals, and collections, creating broader liability
IRS representation coverage — Ensure your E&O policy explicitly covers IRS representation services
OPR proceedings — EAs are subject to IRS Office of Professional Responsibility discipline
Continuing education requirements — Some carriers offer CE credits as part of risk management programs

EA-Specific Pricing

EA Practice Focus	Monthly Cost	Key Coverage Needs
Tax prep only	$85–$125/mo	Standard E&O + regulatory defense
Tax prep + IRS representation	$100–$175/mo	E&O + IRS proceedings + OPR defense
Tax prep + advisory + representation	$125–$250/mo	Comprehensive E&O + cyber

The NAEA (National Association of Enrolled Agents) offers a group E&O program through CNA that provides competitive rates for members.

How to Reduce Tax Preparer Insurance Costs

1. Use Engagement Letters for Every Client

This is the single most effective risk management tool — and premium reducer. An engagement letter:

Defines the scope of services
Limits your liability
Sets client expectations
Creates a written record
Carriers may offer 5-10% discounts for consistent engagement letter use

2. Implement a Review Process

Have every return reviewed by a second person before filing. Even a basic checklist review catches most errors. Document the review process — carriers view this as a significant risk reducer.

3. Use Professional Tax Software

Carriers want to see you're using professional-grade software (Drake, Lacerte, ProConnect, UltraTax) rather than consumer products. Professional software has built-in error checking, e-file validation, and audit trails.

4. Complete Continuing Education

Go beyond the minimum CE requirements. Some carriers offer premium credits for additional education, especially in areas like:

Ethics and professional responsibility
Tax law updates
Practice management
Data security

5. Maintain Organized Records

Keep copies of all returns, supporting documents, engagement letters, and client communications for at least 7 years. Organized records speed up claims defense and demonstrate professional diligence.

6. Increase Your Deductible

Going from $1,000 to $2,500 deductible saves 8-12%. Going to $5,000 saves 15-20%. If you can absorb a $5,000 hit, the annual savings make it worthwhile.

7. Bundle with Other Coverage

If you need general liability, cyber, or a BOP, bundling with E&O saves 10-15% with most carriers.

Tax Preparer Compliance Requirements

PTIN Requirement

All paid tax preparers must have a valid Preparer Tax Identification Number (PTIN). While the IRS doesn't require E&O insurance to get a PTIN, many tax preparation franchises and firms require it as a condition of employment or contracting.

Annual Filing Season Program (AFSP)

Non-credentialed preparers who complete the AFSP earn a "Record of Completion" that allows limited representation rights. Some carriers offer discounts for AFSP completion.

State Registration Requirements

Several states require tax preparer registration and/or bonding:

State	Registration Required?	Bond/Insurance Required?
California	Yes (CTEC)	$5,000 surety bond
Oregon	Yes	$5,000 bond or $5,000 E&O
Maryland	Yes	No
New York	Yes	No (but recommended)
Connecticut	Yes	$5,000 bond

Even in states without insurance requirements, E&O coverage is strongly recommended for all paid tax preparers.

Tax Season Risk Management Tips

During Tax Season (January–April)

Verify client identity — IRS requires due diligence; it also protects against identity theft claims
Document everything — Notes on client conversations, decisions, and advice given
Don't rush — Volume pressure leads to errors. Build review time into your workflow
Use secure portals — Don't email tax documents; use encrypted client portals
Confirm e-file acceptance — Follow up on rejected returns immediately

Extension Season (April–October)

Track all extensions — Missing an extension deadline is a common E&O claim
Calendar management — Use automated reminders for October 15 deadlines
Communicate with clients — Remind them about outstanding documents

Off-Season (November–December)

Year-end planning — Help clients with tax-saving strategies before December 31
Update software — Ensure you're ready for the new filing season
Review procedures — What went wrong last season? Fix it now
Keep your E&O active — Claims from the past season can surface anytime

🎯 Get protected before tax season. Compare tax preparer E&O quotes from top carriers →

Frequently Asked Questions

How much is E&O insurance for a solo tax preparer?

Solo tax preparer E&O insurance starts at $67/mo ($800/year) with $500K limits. For higher limits or additional services (bookkeeping, advisory), expect $85-$150/mo.

Do I need E&O insurance if I only prepare simple returns?

Yes. Even simple 1040 returns can result in claims. A wrong filing status, missed credit, or data entry error can cost a client thousands. At $67/mo, the coverage is worth it for any paid preparer.

Can I get insurance if I'm not a CPA or EA?

Absolutely. E&O insurance is available for all paid tax preparers, including those with only a PTIN. You don't need a CPA license or EA designation to get coverage.

Does E&O insurance cover IRS penalties assessed against me?

E&O covers defense costs for IRS preparer penalty proceedings under IRC §6694 and §6695. However, the actual penalty amount may or may not be covered depending on the policy. Some policies cover penalties resulting from negligence but not willful misconduct.

What happens if I stop preparing taxes and cancel my insurance?

You'll need tail coverage (Extended Reporting Period) to protect against claims from returns you already prepared. Typical tail coverage costs 75-150% of your final annual premium for 1-3 years of extended reporting.

Should I get cyber insurance too?

If you store client SSNs, financial data, or tax documents electronically (and virtually every preparer does), yes. A data breach exposing client information can be catastrophic. Cyber coverage starts at $50/mo and many carriers offer E&O + cyber bundles. See our cyber insurance guide for CPAs.

How quickly can I get coverage?

Most carriers bind within 24-48 hours. Hartford and Hiscox offer same-day coverage for standard tax preparation practices.

Does my tax franchise provide E&O coverage?

Some franchises (H&R Block, Jackson Hewitt) provide E&O coverage for their employees and franchisees. However, independent contractors within franchises may need their own coverage. Check your franchise agreement.

What limits should a tax preparer carry?

Minimum recommended: $250K-$500K for solo preparers doing individual returns only. $1M for preparers handling business returns or higher-income clients. Match your limits to your largest client exposure.

Is tax preparer E&O insurance tax-deductible?

Yes. E&O premiums are a fully deductible business expense on Schedule C or your firm's business return.

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