How to price tax preparation services: your effective hourly rate per client

What is your effective hourly rate on a flat fee?

Your effective hourly rate is the fee a client paid you for the year divided by every hour you spent on that client in the same year. A $950 return that took 9.5 hours paid $100 an hour. The formula is simple; the hard part is the hours, because most preparers only have a feel for them.

A flat fee hides the hourly rate on purpose. The client sees a price for a result, and you carry the risk that the work takes longer than you thought. That trade is fine as long as you know which way it is going for each client. Most practices do not. The fee was set years ago, it went up by the same percentage as everyone else's, and nobody has checked it against the time since.

One preparer on a tax professionals' forum described exactly this. They charged one client $300 for about 45 minutes of work a year, another $750 for about ten hours, and a large client $30,000 for roughly 15 hours a month from January to March and five or six after that. A reply worked those out at about $400, $75 and $300 an hour. The $750 client looked like an ordinary, slightly cheap return. It was the worst-paid work in the practice by a wide margin.

That spread is normal, and it is the reason to do the calculation per client rather than for the practice as a whole. An average across all clients can look healthy while two or three of them are being subsidised by the rest.

How do six clients compare over a full year?

The six sample clients below produce very different effective rates, even when they need similar returns. The sample covers November 2025 to October 2026. Tax season is January to April; the rest of the year covers everything before and after it. The clients and figures are invented to show the method, built on the same shape as the forum example.

The practice as a whole earns $121.49 an hour. Measured against a target of $150, that sounds like a modest gap you could close with a general price rise. Per client, it is a different picture. Two clients pay well over $200 an hour, three sit between $100 and $135, and Ruiz Trucking pays $78.95. Ruiz brings in the second-largest fee and takes 40% of all the hours.

The two business returns at the top and bottom are similar work on paper. What separates them is the condition of the records. Chen Dental's bookkeeper hands over clean books; Ruiz Trucking's documents arrive in pieces and late. A price list by form charges both the same, and the hours show what that costs.

Why do the off-season hours change the answer?

Because a third of the work happens outside the season, and it is not spread evenly. In the sample, 32.75 of the 94.25 hours fall outside January to April. If you only count the season, every client looks better, and the clients with the most follow-up work look much better than they are.

On season hours alone, Brandt rentals clears the $150 target and nobody would question the fee. Over the full year it pays $100, because a tax notice in the summer took 2.5 hours and the client called about it several times. Ruiz Trucking drops from a tolerable $136 to under $80 once an amended return, a notice and a stream of questions through the year are counted.

This is why the tracking has to run for twelve months before you judge anything. The off-season work is exactly the work nobody remembers when the fee is reviewed, because it arrived in small pieces between other jobs.

Which client work belongs in the hours total?

Track every minute that exists because of the client, labelled by the type of work. Four labels are enough for most practices, and each one answers a different question when a rate comes out low.

• Prep and review: the return itself, including entering data, review and e-filing. If this alone is high, the fee does not match the complexity of the work.
• Client email and calls: questions, explanations, sending the return for signature. A high total points to a communication pattern you may be able to change.
• Chasing documents: reminders, missing forms, reconciling what arrived with what you asked for. This is the clearest sign of a client whose records are costing you.
• Notices and amendments: letters from the tax authority, amended returns, corrections after the fact. Decide whether these are inside the fee or billed separately.

In the sample, Ruiz Trucking's 38 hours break down as 16 hours of prep and review, 8 hours of email and calls, 8 hours chasing documents and 6 hours on notices and an amended return. Only 16 of the 38 hours are the return the fee was set for. That split tells you what to change: the fee for the return is roughly right, the other 22 hours are the problem.

Record short contacts too. A 10-minute call is easy to skip, but repeated omissions hide the cost of a client who calls every week. If you do not start a timer, add the call at the end of the day.

If you have never tracked time per client, you are in the same position as the bookkeepers in one recent thread who had set monthly flat fees from estimates. The advice that came back was consistent: track the hours for a few months, then set the flat rate from the tracked average. For a tax practice the cycle is a year, so the first full year of tracking is the one that counts.

Is a tax preparation price list by form enough?

A price list by form is a good starting point for quoting new clients, but it cannot tell you whether an existing client is profitable. It prices the forms. The hours come from the client: how organised they are, how often they call and how many surprises arrive after the return is filed.

The sample shows the limit clearly. Ruiz Trucking and Chen Dental would sit on the same line of any price list, an S corporation return plus the owner's return. One pays $78.95 an hour and the other $218.75. No list can see that difference in advance, and only your tracked hours can see it afterwards.

Use both. Keep the price list for new work, then check each client against your target rate once a year. When a client keeps falling below the line, that is the signal to price them on their record rather than on their forms. Some practices add a line to the list itself, such as a separate charge for records that need cleanup before the return can start, which turns the most common cause of overruns into a visible item.

How do you reprice clients below your target rate?

Sort the clients by effective rate, mark everyone below your target, and decide one of three things for each: raise the fee, change the scope, or let the client go. Use the hours to calculate a new fee or decide which work to bill separately before discussing the change.

The fee that hits the target is the target rate times the client's hours. Here is what that means for three of the four sample clients below $150 (Lindqvist Design, at $133.33, is close enough to keep at its fee for another year and check again):

Ruiz Trucking shows why the type of work matters. Raising the fee from $3,000 to $5,700 in one step would probably lose the client. Instead, notices and amendments (6 hours) move to an hourly charge, and a firm deadline for documents is expected to cut the chasing from 8 hours to about 3. That leaves 27 hours inside a $4,500 fee, $166.67 an hour, and the client can see exactly what changed and why.

Marlow & Pike is close enough that a 12.5% increase gets most of the way there. Not every client has to reach the target in one year. A client at $135 who refers others and pays on time can be worth keeping a little below the line, as long as you made that decision on purpose.

For the conversation itself, talk about the work rather than your hourly rate. "Last year we spent eight hours collecting your documents, so this year the fee assumes everything arrives by February 15, and late records are billed separately" is a reason a client can act on. Telling them they earn you $79 an hour is not. Send the new fee with the engagement letter, well before the season, so the client has time to decide.

What is a fair price for tax preparation?

A fair price is one that covers the hours the client actually needs at a rate that keeps your practice healthy, and that the client can understand. Fairness runs both ways. The Okafor family paying $228 an hour for a simple return is not unfair if the price is in line with the market for that return, but it does mean the low-effort clients are carrying the high-effort ones.

That cross-subsidy is the real cost of not tracking. You end up charging organised clients more than they cost and disorganised clients less, which rewards exactly the behaviour that makes the season harder. Pricing from the hours moves the cost to where it comes from.

Set your target rate from the cost of running your practice and the hours you can realistically bill in a year. The annual billable capacity can help with the second half of that: how many of your working hours actually end up on a client.

How do you collect a year of hours per client?

Set up one client record per client, log every entry against them with a type-of-work tag, and run one report over the twelve months grouped by client. The report gives you the hours column of the table above; the fees and the division happen in a spreadsheet.

1. Set up once: a client for each household or business and a project under it for the year's work. Create the four tags: Prep and review, Client email and calls, Chasing documents, Notices and amendments.
2. Log as you go: every entry gets the client's project and one tag, including the 10-minute call in July. Use the timer while you work, or add the entry afterwards.
3. Run the year: pick a custom date range covering twelve months, filter to the clients you are reviewing, group by client, and add tag as the second level.
4. Export and divide: export the summary as CSV, paste the hours next to each client's annual fee, and divide.

Timen does this part for free, with unlimited users, so the whole office can track into the same clients. Each entry carries a project, its client, tags and a billable switch. The client hours report runs over any date range, groups by client with a second level such as tag, and exports to CSV or PDF. The monthly bars show the season and the follow-up work after it at a glance.

Timen records hours, not fees. It has no fee budget on a project, no amount column in reports and no alert when a client passes the hours you planned, so the effective rate is a spreadsheet column you fill from the export. It is also not practice software: no filing deadlines, document requests or client portal. When you do bill an extra, such as the hourly notice work for Ruiz Trucking, the invoice from tracked time can carry those hours alongside a manual line for the flat fee. For an office-wide setup, use client tracking for accountants.

What else affects a tax client's effective rate?

How do you calculate the effective hourly rate on a flat-fee tax client?

A flat-fee tax client's effective hourly rate is their annual fee divided by all hours spent on them in the same twelve months. Include calls, email, chasing documents and notices after the season. A $950 fee over 9.5 hours is $100 an hour.

Should you count off-season hours in a tax client's rate?

Yes. In the sample, a third of all hours fell outside January to April, and counting only the season put one client at $136 an hour instead of $79. Notices, amendments and estimate questions belong to the client's year.

What if you have not tracked time per client before?

Start now and run it for a full twelve months before you reprice. Until then, compare clients of the same return type by feel, but treat the first tracked year as the one that decides fees.

Should you charge separately for notices and amended returns?

It depends on your engagement letter, but separating them is the simplest fix for a client whose rate is low because of after-season work. In the sample, moving 6 hours of notices to an hourly charge did more for one client's rate than a fee increase could.

When should you raise a tax client's fee?

Before the engagement letter for the next season goes out, so the client knows the price before any work starts. Base the new fee on the tracked hours and explain it through the work, such as late documents, rather than through your hourly rate.

What should you do before the next season starts?

Pull twelve months of hours per client, divide each annual fee by them and sort the list. Reprice or rescope everyone below your target before engagement letters go out, and start tracking every client contact now if you have not been, so next year's decision rests on a full year. Timen is free for the tracking and the per-client report; the fees and the division live in your spreadsheet. If you also quote one-off projects, the same method applies to pricing fixed-fee work.