Running a raffle with multiple prizes legally means clearing three separate hurdles: a state permit that authorizes your nonprofit to hold the event, federal restrictions on how you sell and promote tickets, and IRS reporting and withholding on the prizes you hand out. Miss any one of them and you can lose your gaming privileges, face fines, or create personal exposure for the officers who signed the paperwork. The steps below walk through what to do in the order you’ll need to do it.
Confirm Your Organization Can Legally Hold a Raffle
Nearly every state limits raffle authority to nonprofits with tax-exempt status under Section 501(c) of the Internal Revenue Code. Which subsections qualify varies. Some states accept any 501(c) organization; others limit eligibility to 501(c)(3) charities or require a minimum number of years in existence. For-profit businesses and individuals are prohibited from running raffles in virtually all jurisdictions.
Three states effectively shut the door. Alabama treats raffles as illegal lotteries with no nonprofit exception. Utah bans all raffles as gambling. Hawaii prohibits raffles unless participation is completely free with only voluntary donations, which functionally eliminates the model because ticket sales are the defining feature. In those states, a sweepstakes structured with a free entry method is usually the legal alternative.
A few states also require that a specified percentage of gross receipts go directly toward your charitable mission rather than administrative costs or prizes. The threshold varies, so confirm it with your state attorney general’s office or charitable gaming division before you set your prize budget.
Apply for the Right Permit Before You Print Tickets
Register with whichever agency oversees charitable gaming in your state: the attorney general’s office, a gaming commission, or the secretary of state. Applications typically ask for your legal name, federal employer identification number, current proof of tax-exempt status, and a designated responsible person who acts as the primary contact for regulators.
For a multi-prize event, the application usually demands a full list of every item being offered, its fair market value, and how it was acquired (purchased, donated, or sponsored). You’ll also disclose the ticket price and the total number of tickets authorized for printing. That cap matters: it locks in the advertised odds and prevents the organization from printing more tickets after sales begin.
Filing fees range from nothing in states that only require registration to several hundred dollars for large events. The amount often depends on expected gross receipts, prize values, or whether the license covers a single event or a full year. Many states impose a mandatory waiting period between approval and your first ticket sale, so file early. Operating without a permit can result in misdemeanor charges or significant fines against both the organization and its officers.
Understand the Mail and Online Sales Rules
Federal law makes it a crime to send raffle tickets, raffle advertisements, or even a list of raffle winners through the U.S. mail. The prohibition under 18 U.S.C. ยง 1302 covers any “lottery, gift enterprise, or similar scheme offering prizes dependent in whole or in part upon lot or chance,” which includes raffles. A first offense carries up to two years in prison and a fine; subsequent offenses carry up to five years.1Office of the Law Revision Counsel. 18 USC 1302 – Mailing Lottery Tickets or Related Matter The statute reaches circulars, pamphlets, and any publication advertising the raffle or listing prizes.
In practice, you cannot mail tickets to potential buyers, send promotional flyers through USPS, or mail a newsletter announcing winners. Private carriers like FedEx and UPS are not bound by this federal statute, though using them for ticket distribution may still trigger state-level restrictions. Selling in person or through approved digital channels is the safer route.
Roughly 45 states permit online raffle sales in some form, but the conditions differ sharply. Some require a separate internet raffle application and prior approval from the gaming commission. California and Arkansas prohibit online ticket sales entirely and require physical, preprinted tickets. Others mandate a free entry method so the raffle does not qualify as gambling under state law. Confirm your state’s rules before setting up any digital sales platform; penalties for unauthorized online sales are the same as for unauthorized in-person sales.
Pick and Value the Prizes Carefully
Not everything can be raffled off. Firearms, alcohol, and tobacco draw heavier regulatory scrutiny because those items carry their own licensing requirements. Offering a firearm as a prize does not exempt the transfer from background check requirements, and the winner must be legally eligible to possess the weapon. Some states ban these categories for charitable raffles altogether.
Many states also cap the maximum value of individual prizes, the total prize pool, or both. The limits vary widely. Going over the cap, even unintentionally because a donated item appreciated, can void your permit.
Vehicles and Real Estate
Raffling a car or property adds a layer. The organization generally must prove it owns the item or holds an enforceable contract for title transfer before the first ticket is sold. Some states require posting a certificate of deposit or bond equal to the purchase price during the sales period so the winner is protected if the transfer falls through. Every ticket must also disclose any encumbrances on the prize, including mortgages, liens, and the winner’s anticipated income tax liability.
Donated Prizes
When prizes are donated, you must determine and report a fair market value for each item. Overvaluing donations inflates the apparent generosity of the raffle and creates problems if the state compares your application against post-event accounting. For high-value items like artwork, jewelry, or vehicles, get an independent appraisal before you list the item on the permit application.
Run the Drawing So It Is Visibly Fair
The drawing itself has to look fair to anyone watching. Most states require that all ticket stubs go into a large transparent container or mechanical drum so attendees can see the entries being mixed. Every ticket must have an identical chance of being pulled, which means no reaching into a corner of the bin and no letting stubs clump together.
For multiple prizes, the standard approach is to draw the smallest prize first and work up to the grand prize. That keeps the audience engaged and puts the biggest award in a high-attention moment. Remove each winner’s stub after the draw so no one wins twice, unless your official rules explicitly permit multiple wins. State that policy in the printed rules before ticket sales begin; changing it after the fact looks like manipulation.
Most states require the drawing to happen in a public setting or in front of at least two independent witnesses. “Independent” means people who are not officers, employees, or family members of anyone on the organizing committee. Employees and immediate family of organizers are often barred from winning at all. Winners generally do not need to be present to claim their prize, as long as the contact information on the stub is legible.
Handle IRS Reporting and Withholding
The tax side splits into two thresholds: one for reporting and a separate, higher one for withholding. Confusing them is one of the most common mistakes.
Form W-2G Reporting at $2,000
Starting in 2026, you must file IRS Form W-2G for any winner whose prize is at least $2,000 and at least 300 times the ticket price. Both tests apply. If tickets cost $5, then 300 times the wager is $1,500, so the $2,000 floor controls and any prize worth $2,000 or more triggers a filing. If tickets cost $20, then 300 times the wager is $6,000, and that higher figure becomes the reporting threshold.2Internal Revenue Service. Instructions for Forms W-2G and 5754 (Rev. January 2026) The prior $600 threshold applied through 2025; the change to $2,000 reflects a new annual inflation adjustment that will keep shifting.
When multiple people share a single winning ticket, the person who physically claims the prize completes Form 5754, which identifies each winner and their share. You then issue separate W-2G forms to each person.3Internal Revenue Service. About Form 5754, Statement by Person(s) Receiving Gambling Winnings
24 Percent Withholding Over $5,000
If the prize value minus the ticket cost exceeds $5,000, the organization must withhold 24 percent of the net winnings for federal income tax. For raffles, this withholding applies regardless of the 300-times-the-wager test.4Office of the Law Revision Counsel. 26 US Code 3402 – Income Tax Collected at Source Withholding is calculated on the full net proceeds, not just the amount above $5,000.2Internal Revenue Service. Instructions for Forms W-2G and 5754 (Rev. January 2026)
Collect each winner’s taxpayer identification number before releasing the prize. Have every winner who crosses the reporting or withholding threshold complete a Form W-9 on the spot.5Internal Revenue Service. About Form W-9, Request for Taxpayer Identification Number and Certification Hand over a $30,000 car without withholding, and your organization can be held liable for the winner’s tax bill. For non-cash prizes, the winner typically writes a check to cover the withholding before taking possession, or the organization withholds from any cash component of the prize.
Tell Buyers Their Tickets Are Not Deductible
The cost of a raffle ticket is not deductible as a charitable contribution, even when every dollar goes to a 501(c)(3). The IRS treats the ticket as payment for the chance to win a prize, not a gift.6Internal Revenue Service. Publication 526, Charitable Contributions The agency has held this position for decades on the reasoning that the buyer receives something of value (the chance to win) in exchange for the payment, which disqualifies it as a charitable contribution.7Internal Revenue Service. Revenue Ruling 67-246
Disclose this on the tickets themselves and on promotional materials. Don’t call the ticket price a “donation” or “contribution” on the ticket; that phrasing is misleading and can create problems for a buyer who tries to claim the deduction. Use “ticket” or “entry.”
File Your Post-Event Report and Keep Your Records
Most states require a post-event or year-end report with a final accounting of funds raised, expenses, and prizes distributed. The figures should reconcile with your original permit application. A report showing dramatically different receipts or expenses than projected will attract scrutiny. Some states require the filing within a specific window after the event; others set a calendar deadline covering all raffles held during the prior year.
Keep detailed records of ticket sales, prize acquisitions, winner identities, W-2G filings, and every financial transaction for at least three and a half years after filing the related tax return. State retention requirements vary, and some agencies can inspect gambling records without advance notice. Good records also make next year’s permit application substantially easier to complete.