Raffles are a great way to raise money for your nonprofit. Selling the chance of winning a big prize pulls people into your donor base who may not otherwise be able to afford auction items.
Due to raffles’ proximity to gambling, however, state governments enforce several raffle rules and regulations to prevent abuse.
While we don’t provide legal advice, we’ve summarized the most common considerations for running a legal raffle. Please consult a lawyer for your specific location and prize drawing.
Turn a raffle into a sweepstakes by allowing entrants to print and mail an entry form for a free chance to win. As with raffles, check if your municipality has any additional rules that govern sweepstakes, though you’ll generally find a less stringent regulatory environment.
To be certain, the vast majority of sweepstakes entries will be issued after someone makes a cash donation to your cause. Many charity sweepstakes won’t get a single mailed-in entry form because participants understand the purpose is to raise money for a good cause.
Although sweepstakes avoid many of the regulations that govern raffles, mind the following:
To run a legal raffle, you will most likely need a gaming license. Your requirement for a license may depend on:
For most locales, you need to be a tax-exempt 501(c) organization. Additionally, many locales require that your nonprofit has been in existence for a minimum amount of time.
In some states, you will be required to register with the state gaming commission, and then apply for a license with your municipality. In other states, you will apply directly with the municipality. Applications are fairly inexpensive (around $100), though tedious.
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If you plan to issue a cash prize or real estate, double check that your state allows it. In California, for instance, 50/50 raffles are available only at major league sporting events.
Additionally, check your state’s regulations regarding paying for prizes if you can’t procure a fully donated item. Some states require that you generate enough proceeds in ticket sales to cover your costs.
On the flip side, some states, like Nebraska, require you award at least 65% of the gross proceeds as prizes when proceeds exceed $5,000. For example, if you raffle off a vacation with a fair market value of $6,500, you can sell only up to $10,000 in tickets.
Finally, always make sure you award your prize. This is a key difference between raffles and lotteries: raffles always have a winner and lotteries sometimes have a winner. This distinction may change how your fundraising is regulated.
To get your brainstorming started, check out our list of raffle prizes.
For all raffles, it’s important to publish the rules to minimize the likelihood of a dispute.
Here is an example of terms and conditions for a 50/50 raffle performed at Atlanta Hawks games to benefit the Atlanta Hawks Foundation. You’ll see they cover:
Publish the rules online and have a copy of the rules available to your ticket sellers to give to purchasers. Your municipality may also have laws that require you to publish rules on any marketing materials.
Many raffle organizers are surprised to learn that the orange double roll of tickets with “TICKET” printed on one side and “KEEP THIS COUPON” printed on the other don’t meet many states’ requirements for raffle tickets.
For example, the New Jersey Legalized Games of Chance Control Commission requires you to furnish a sample ticket with minimum information before approving your license for off-premise raffles (participant need not be present to win). This ensures that the nonprofit is able to contact the winner if they are not present.
Some common ticket requirements are:
Your organization should also keep a stub to perform the drawing and identify the winner(s). The stub should contain the name and contact information of the ticket holder, the ticket number, your organization’s name, and gaming license number.
Pro Tip: For raffles where participants may purchase dozens of tickets, furnishing this information on every ticket is impractical. Many nonprofits continue issuing the ubiquitous orange tickets and then furnish purchasers with a single card with the above information.
Selling tickets in-person is generally allowed, so long as you adhere to the following:
Where many regulations come into play is when you sell tickets online, over the phone, or through the mail. These alternative selling channels are heavily regulated because it is difficult to prevent someone from out-of-state or a minor from purchasing a ticket.
Your ticket-selling website must have certain safeguards in place to prevent interstate sales. As of this writing, online raffles are prohibited in Alabama, California, Hawaii, Kansas, Utah, Washington, Iowa and Minnesota and Montana
One more note about online raffles. The federal Wire Wager Act prohibits regular online gambling and for online gambling to provide regular and essential income to an organization. Thus, avoid running an online raffle with regularity.
If you are planning an “off premise” raffle (participant need not be present to win), check that your state allows it and if there are any special regulations. As mentioned above, New Jersey requires specific information to be included on the ticket when hosting an off premise raffle.
For “on premise” raffles, check your state’s regulations on eligible venues. For example, Georgia requires that the drawing takes place on premises owned by the nonprofit or leased by the nonprofit and regularly used for non-raffle activities, In other states, venues not owned or leased by the nonprofit may host a raffle with special permitting.
In all cases, make sure that your gaming license is displayed at the venue, and that someone at least 18 years old supervises the drawing.
Taxes can be complicated. We summarized the key points below, but the IRS publishes a great document with examples in Publication 3079: Tax Exempt Organizations and Gaming. We highly encourage you to check it out.
If the fair market value of the prize is at least 300 times the wager (i.e., ticket price) AND the fair market value, minus the wager, is over $600, then you must file Form W-2G with the IRS and give a copy to the winner.
When the person receiving the prize is not the actual winner or is a member of a group of two or more people sharing the winning, have them fill out IRS Form 5754 and submit it to you. This form contains helpful information for you to fill out Form W-2G.
In addition to the above requirements, if the fair market value of the prize, minus the wager, exceeds $5,000, then you must withhold income tax at a 24% rate (as of this writing) and report it on Form W-2G with the winner’s signature.
This is a straightforward filing for cash prizes, but must also be done for non-cash prizes, like a car.
If it is a non-cash prize, the winner pays the organization the necessary tax. For this reason, it is very common for winners of non-cash prizes to reject the prize due to the tax burden. Some nonprofits offer to pay the tax burden or provide a “cash-only option” so the winner is rewarded.
At year end, report the total amount of federal income tax withheld during the year on Form 945: Annual Return of Withheld Federal Income Tax. This will include all the taxes reported across all the Forms W-2G filed for the year.
Unrelated Business Taxable Income, or UBTI, is income earned by 501(c)(3) organizations that is not substantially related to the charitable, educational, or other purpose that is the basis of the organization’s exemption. Hence, UBTI is taxable.
Unfortunately, income from raffles qualifies as UBTI and must be reported on IRS Form 990-T.
An exception to this rule is made for organizations where substantially all the work is performed by a volunteer workforce – just make sure to record hours worked by compensated and volunteer workers! For complete IRS rules, see IRS Publication 598.
For each federal IRS form you submit, there is a corresponding state form to submit as well. Consult your local tax laws to determine your requirements.
Always keep your records for your raffle for at least three years. This is a best practice if not a legal requirement. At a minimum, records should contain:
We’ll take this time to remind you that we do not provide legal advice. We recommend you procure legal assistance with your raffle.
Gaming laws differ from state to state, and we obviously can’t cover every nuance here. Though it may raise the overhead of your event, a legal representative will minimize your exposure to legal risk.
