In most states, a nonprofit can run a 50/50 raffle, but only after getting a state charitable gaming license, following the state’s operational rules, and handling the IRS paperwork that comes with paying out the winner’s share. Three states shut the door entirely, and several tax and reporting obligations catch organizations off guard even where the raffle itself is legal.
States Where a 50/50 Raffle Isn’t Allowed
Before anything else, check whether your state is one of the ones that ban charitable raffles outright. Alabama treats raffles as illegal lotteries with no nonprofit exception. Hawaii prohibits raffles unless participation is completely free, which defeats the purpose of a 50/50. Utah bans all raffles as a form of gambling. If you operate in one of these three states, a 50/50 raffle is not an option regardless of your tax-exempt status.
Every other state has carved out an exemption for qualifying nonprofits, but each sets its own rules through its charitable gaming statutes. There is no federal law that governs whether a nonprofit can hold a raffle. The rules are state-by-state, and they vary widely.
Whether Your Nonprofit Qualifies
Eligibility is usually limited to organizations with federal tax-exempt status. Most commonly that means 501(c)(3) charitable, religious, and educational groups, though many states also allow veterans’ organizations, fraternal societies, and civic leagues organized under other 501(c) subsections.
Several states add a durational requirement. The nonprofit must have been in continuous operation for a minimum period, often one to three years, before it can apply for a raffle license. The point is to screen out groups that exist on paper just to run gambling events. Your founding date and incorporation records will come up in the application.
States also restrict what you can do with the money. Proceeds must go toward the organization’s stated charitable purpose. Spending raffle revenue on unrelated activities, or channeling it to benefit specific individuals without approval, can violate the license and trigger enforcement.
Getting Licensed Before You Sell Tickets
You need a license or registration before selling a single ticket. The issuing agency depends on the state: it may be the gaming commission, the attorney general’s office, or the department of revenue. Applications typically ask for:
- Your IRS determination letter confirming tax-exempt status
- Articles of incorporation or bylaws
- Names of the organization’s officers
- The intended use of the proceeds
- Proposed dates for ticket sales and the drawing
Timing matters. Some states require the application to be filed at least 60 days before any raffle activity, including ticket sales. File late and your event may be delayed or denied, so start the licensing process well before you announce anything publicly.
Many states cap the number of raffles an organization can hold per year, the value of a single prize, or the total raffle revenue allowed annually. These limits vary widely. Check your state’s statute before setting a ticket price or advertising a prize structure, because exceeding a cap can void your license.
Rules While the Raffle Is Running
Once licensed, operational rules kick in. Most states require specific information on every ticket: the full legal name of the nonprofit, the ticket price, the state-issued license or permit number, and the date, time, and location of the drawing.
Who can sell tickets is another common restriction. Many states require that only unpaid volunteers or dues-paying members handle sales. Hiring paid staff or outside vendors to sell can violate the license. Age limits also apply: selling to minors is prohibited in most jurisdictions, and some states set the minimum buyer age at 18 or 21.
The drawing itself usually has to happen in a public setting where anyone can watch the selection. Some states require the organization to post the winning numbers or publish results within a set timeframe.
Online Ticket Sales
This is where organizations most often slip up. Most states either prohibit online raffle ticket sales entirely or restrict them heavily. Selling through your website, social media, or email may violate your state’s law even if in-person sales are perfectly legal. A few states now allow digital sales under specific conditions, but assume online sales are off the table unless your state’s statute explicitly says otherwise.
Keeping Insiders Out
Some states prohibit board members, employees, and their immediate families from buying tickets or winning prizes at the organization’s own raffle. Even where state law is silent, letting an insider win a 50/50 looks bad and invites scrutiny. Many nonprofits bar insider participation by policy regardless of what the law requires.
Paying the Winner and Reporting to the IRS
The fundraising is only half the job. Federal tax reporting is where compliance most often breaks down, and the IRS treats these obligations seriously.
When You Owe a W-2G
A nonprofit paying out raffle winnings has to file IRS Form W-2G and give a copy to the winner when the payout meets two tests. For payments made in 2026, the net winnings (prize minus the ticket cost) must be at least $2,000, and the payout must be at least 300 times the ticket price.1Internal Revenue Service. Instructions for Forms W-2G and 5754 (Rev. January 2026) The threshold adjusts for inflation. A typical 50/50 with a $5 ticket and a $3,000 pot clears both tests: net winnings of $2,995 and a payout-to-wager ratio of 600 to 1.
When a group of ticket buyers shares a prize, the person who collects the money fills out IRS Form 5754 identifying every member of the group and their share. The organization then issues a separate W-2G to each winner.2Internal Revenue Service. About Form 5754, Statement by Person(s) Receiving Gambling Winnings
24% Withholding on Larger Prizes
If net winnings exceed $5,000, the nonprofit must withhold 24% in federal income tax before paying the winner.3Internal Revenue Service. Instructions for Forms W-2G and 5754 (01/2026) The winner’s W-2G still shows the full gross winnings; the withheld amount becomes a credit against their tax at filing time. Skipping the withholding step leaves the organization on the hook.
Backup Withholding
If a winner won’t or can’t give you a valid Social Security number or taxpayer identification number, apply backup withholding at 24% regardless of the prize size. This applies even when the prize is under the regular withholding threshold. A TIN is invalid if it has more or fewer than nine digits or contains non-numeric characters.
Form 945 to Send the Withholding to the IRS
Any federal income tax withheld from raffle winnings gets reported on Form 945, the annual return for withheld federal income tax on nonpayroll payments.4Internal Revenue Service. About Form 945, Annual Return of Withheld Federal Income Tax It’s due January 31 of the year after the raffle. Missing it means you withheld someone’s money and never accounted for it, which is exactly the kind of gap that draws IRS attention.
Raffle Tickets Aren’t Tax-Deductible Donations
This catches ticket buyers off guard, and organizations that don’t communicate it clearly create problems for their own supporters. The IRS does not treat a raffle ticket as a charitable contribution, even when the raffle is run by a 501(c)(3). Because the buyer gets a chance to win a prize in return for the payment, the transaction is a wager, not a gift.5Internal Revenue Service. Rev. Rul. 67-246, 1967-2 C.B. 104 Don’t issue donation receipts for raffle sales, and don’t let buyers assume they can deduct the purchase.
Protecting Your UBIT Exemption and Your Records
Raffle income is generally unrelated business income, which would make it taxable. There’s an important exception: if substantially all of the work running the raffle is done by volunteers, the income is exempt from unrelated business income tax.6Internal Revenue Service. Exempt Organization Gaming and Unrelated Business Taxable Income The IRS hasn’t published a bright-line percentage defining “substantially all,” so document volunteer participation carefully and keep paid staff out of raffle operations as much as possible.7Internal Revenue Service. Unrelated Business Income Tax Exceptions and Exclusions
Most states also require a post-raffle financial report to the licensing agency showing gross ticket revenue, the prize paid out, expenses, and how the net proceeds were spent or will be spent. Even where the state doesn’t require it, keep the paperwork: ticket stubs or sales logs, winner names and contact information, all W-2G and 5754 forms filed, proof of how the proceeds were used, and records of who volunteered. If a state regulator or the IRS ever asks questions, a clean paper trail is the best answer you can give.