Fundraising raffle rules come from two levels of government at once: your state issues the permit that makes the raffle legal, and federal law controls how tickets can be distributed and how prizes are taxed. A nonprofit that wants to run one needs a state gaming license, has to keep ticket sales and advertising inside state lines, and must report and withhold tax on larger prizes. Getting any of these pieces wrong can cost the organization its license, create a surprise tax bill, or, in the case of interstate ticket sales, expose organizers to federal criminal penalties.
Which Nonprofits Are Eligible
Eligibility is broader than most organizers assume. It’s not limited to 501(c)(3) charities. Most states also allow 501(c)(4) civic leagues, 501(c)(7) social clubs, 501(c)(8) and 501(c)(10) fraternal lodges, and 501(c)(19) veterans’ organizations to run raffles.1Internal Revenue Service. Tax-Exempt Organizations and Raffle Prizes – Reporting Requirements and Federal Income Tax Withholding The common requirements are tax-exempt status under some subsection of IRC Section 501, a genuine charitable or community-service purpose, and registration with the state.
Some states also require the organization to have existed continuously for a minimum period, often two to three years, before it can hold a gaming license. Confirm eligibility with the state agency that oversees charitable gaming before spending money on tickets, prizes, or venue deposits.
Getting a State Permit
Nearly every state requires a permit or registration before a nonprofit can sell raffle tickets. The agency in charge varies by state: it may be a dedicated gaming commission, the attorney general’s office, or a division within the secretary of state’s office. Whichever agency handles it, the application asks for roughly the same core information: proof of tax-exempt status (typically the IRS determination letter), the organization’s governing documents, a list of officers, and details about the planned event.2Internal Revenue Service. Tax-Exempt Organizations and Gaming
Event details usually cover the date and location of the drawing, the number of tickets you plan to print, the ticket price, and the fair market value of each prize. Regulators use this information to gauge the scope of the activity and to check whether any prize-value caps apply. Some states set thresholds that require additional approval when individual prizes or total prize pools cross a certain dollar amount.
Application fees are generally modest, from nothing in some states to around $30 in others. Many jurisdictions accept applications through an online portal; some still require mailed submissions. Processing times vary, so submit well before the event date. Once approved, the organization receives a permit or registration number, and some states require that number to appear on every ticket or be displayed at the drawing.
The Interstate and Mail Prohibition
Federal law draws a hard line that catches many organizers off guard: you cannot send raffle tickets, or advertisements for a raffle, across state lines or through the U.S. mail. Under 18 U.S.C. § 1301, transporting lottery tickets in interstate commerce is a federal crime punishable by up to two years in prison.3Office of the Law Revision Counsel. United States Code Title 18 – 1301 Under 18 U.S.C. § 1302, mailing lottery tickets, payment for tickets, or any advertisement for a lottery carries penalties of up to two years for a first offense and five years for subsequent offenses.4Office of the Law Revision Counsel. United States Code Title 18 – 1302
In practical terms, ticket sales and promotional materials have to stay within the state where the raffle is licensed. Organizations that promote a raffle on social media or their own website need to be careful not to effectively solicit purchases from out-of-state residents. Some states now allow online ticket sales within their own borders, but each requires its own approval, and the federal interstate prohibition still applies regardless of the platform.
Running the Drawing and Awarding Prizes
The drawing has to be verifiably random and transparent. Most states require an impartial selection method, whether that’s pulling stubs from a physical container or using a random number generator, and the drawing should happen at the time and place announced on the tickets. Having multiple officers or volunteers witness and document the draw protects the organization against fraud allegations and satisfies state integrity requirements.
States set a minimum age for participants, typically 18, though the exact age varies. Selling a ticket to someone underage can trigger fines and put the gaming license at risk. Verifying age at the point of sale is the organization’s responsibility.
The organization must actually own the prize before it’s awarded. Promising a prize you haven’t secured and then scrambling to buy it after ticket sales is a compliance violation in many states. Donated prizes need documentation of their fair market value, both for the state application and for later tax reporting.
Some prize types carry extra burdens. Firearms are permitted as raffle prizes in some states and restricted or prohibited in others; even where allowed, the winner typically must clear a background check before taking possession. Alcohol prizes are similarly regulated and may be limited to members-only events or require a separate liquor authority permit. Several states also cap individual prize values or total annual prize pools and require special approval above those limits.
Tax Reporting and Withholding on Winners
When to File Form W-2G
For payments made in 2026, the IRS requires filing Form W-2G for raffle winnings of $2,000 or more when the prize is also at least 300 times the ticket price.5Internal Revenue Service. Instructions for Forms W-2G and 5754 Both conditions have to be met. A $2,500 prize on a $5 ticket (500 times the wager) triggers reporting. A $2,500 prize on a $100 ticket (25 times the wager) doesn’t, because it fails the 300-times test even though it exceeds $2,000.
The 24% Federal Withholding Threshold
When raffle proceeds exceed $5,000, the organization must withhold federal income tax at 24% of the prize’s fair market value.6Office of the Law Revision Counsel. United States Code Title 26 – 3402 – Income Tax Collected at Source For raffles, there is no additional 300-times-the-wager condition on withholding the way there is for reporting. Any raffle prize worth more than $5,000 triggers mandatory withholding.
If the prize is non-cash (a car, a vacation package, jewelry), the winner still owes tax on the fair market value. The organization has two options: collect the withholding amount from the winner in cash before handing over the prize, or report the full value on Form W-2G and let the winner settle up at filing time. Collecting upfront is cleaner for the organization but requires clear disclosure on the ticket or in the event rules so winners aren’t caught by surprise.
Missing TINs and Nonresident Winners
If a winner fails to provide a valid taxpayer identification number, the organization applies backup withholding at a flat 24%.7Internal Revenue Service. Topic No. 307, Backup Withholding For nonresident alien winners, the default federal withholding rate is 30% of the total prize value, though it may be reduced under a tax treaty between the winner’s home country and the United States.8Internal Revenue Service. Instructions for Form 1042-S Nonresident winners who want treaty benefits need to provide an Individual Taxpayer Identification Number and a completed Form W-8BEN before the prize is paid.
Protecting the Proceeds From UBIT
Raffle revenue can trigger unrelated business income tax if the activity looks more like a regular business than an occasional fundraiser. The IRS treats gaming income as taxable business income when the activity is regularly carried on for profit, even if the organization running it is tax-exempt.9Internal Revenue Service. Exempt Organization Gaming and Unrelated Business Taxable Income An annual raffle staffed by volunteers generally sits outside that definition. A weekly raffle run with paid staff starts looking much more like a business.
The key protection is the volunteer labor rule: if substantially all the work is performed by unpaid volunteers, the activity is excluded from unrelated trade or business.9Internal Revenue Service. Exempt Organization Gaming and Unrelated Business Taxable Income “Substantially all” is generally read as at least 85% of the labor. Organizations that hire event staff, pay ticket sellers, or contract with a gaming company to manage the raffle need to check whether they still clear that threshold. Falling short means owing tax on the net gaming income at corporate rates, which cuts directly into the money the raffle was meant to raise.
Ticket Buyers Cannot Deduct the Cost
Buyers frequently assume otherwise. The cost of a raffle ticket is not a deductible charitable contribution, even when the raffle is run by a qualified 501(c)(3). The IRS treats the purchase as payment for a chance to win a prize, not a charitable gift.10Internal Revenue Service. Publication 526 – Charitable Contributions Losing the raffle doesn’t change that; the analysis looks at what the buyer received at the moment of purchase (a chance to win), not the outcome.
Marketing materials should not imply that ticket purchases are tax-deductible. If someone chooses to pay more than the ticket price as a voluntary donation on top of entry, the excess may be deductible, but only if the charity clearly discloses the deductible portion in writing. That situation rarely comes up with standard ticket sales.
Post-Event Reporting and Records
After the drawing, the organization files a financial report with the state gaming authority covering gross ticket receipts, expenses, and net proceeds directed to the charitable purpose. Filing deadlines vary, from 30 days after the event to 90 days, with some states requiring only an annual report.
Internal records matter just as much: ticket stubs or sales logs, winner identification and contact information, prize valuations, copies of any W-2G forms issued, and complete financial ledgers. The IRS can audit exempt organizations for up to three years after a return is filed, and some states require gaming records to be kept for five. Holding records for the longer period is the safer approach, both for audit defense and for demonstrating continued eligibility when applying for the next year’s permit.