Pricing variation of tax preparers based on community size

The National Association of Tax Professionals (NATP) found that the national average hourly rate charged by tax preparers varied greatly by the size of the community where they worked. Those in rural areas charge much less than those in mid-sized towns and cities. This trend was revealed in NATP’s annual member survey. Of course, I wondered how that might compare to my own situation. This is tricky since the survey does not separate CPAs from unlicensed tax practitioners.

For example, in 2019 the average hourly rate for a rural preparer was $164 (like where my favorite office is located in rural NJ bayshore) while the hourly rate for a preparer in a small town (like the size of Millville for example where I spend most of the winter) was $189 and the rate for those in larger towns (the size of nearby Vineland, where I share an office, for example) was $209. At first reading that sounds shockingly low. Another tax service company’s annual survey said that less than 15% of tax preparers used an hourly rate anyway.

So I wondered if there is any correlation or implication of survey results with quality or level of experience. Since tax preparers are not required to be licensed or meet any minimum experience or educational standards, this unfortunately means that there are some low quality preparers in practice. I wonder if these are more common in areas where there is less direct competition or basis of comparison? That might explain some of the variation.

Direct comparison is difficult. In my own case contracted rates are rarely set on an hourly basis and work is seldom for tax preparation alone but is usually part of a more comprehensive financial planning or management project. Even so, it seems interesting to try to compare. If we assume that rates rose 25% since 2019 (the largest in history due to other obvious factors related to the pandemic) then the average hourly rate for larger towns would by $261. If we assume that an experienced CPA charges 50% more than an average industry preparer that would be $391. That compares more closely with rates that I’ve negotiated for accounting services that include tax preparation.

This coming month tax preparers across the nation will set their rates for 2022. Based on the challenges and problems they’ve had in 2021 ranging from the IRS disaster to staffing shortages, I predict that we will see increases averaging above 10% across all provided segments. Other than initial tax problem assessment work that is deliberately underpriced, I’m planning for a $1,200 minimum fee with a 3 hour average minimal time allocation per tax client in 2022. Fees will likely vary with case size and complexity but certainly not based on community size.