Raffles and gaming: the tax and state rules for charities

This guide is for charities thinking about a raffle, a 50/50 draw, a bingo night or a "casino night" to raise money. These feel like harmless fun, and they can raise real money. But in the eyes of the law they are gambling, and a charity that runs one without checking the rules can end up breaking state law or owing tax it didn't expect. After reading, you'll know what counts as gaming, how to find and follow your state's rules, and what the IRS expects when you hand out prizes.

For the wider question of whether an event is worth running at all, and the $75 disclosure rule for event tickets, see Planning a first fundraising event.

What counts as gaming

IRS Publication 3079, Tax-Exempt Organizations and Gaming, uses a broad definition. Gaming includes bingo, pull-tabs, poker and other card games, raffles, scratch-offs, casino nights and gambling machines, among others.

The same publication describes a lottery as having three parts: a prize is offered, people pay for the chance to win, and the winner is picked by chance. It says raffles meet that definition. California's Attorney General puts it the same way: a raffle is a lottery in which prizes go to people who pay for a chance to win.

Publication 3079 also makes a point many charities miss: there is nothing charitable about gaming itself. A charity can use the money for its programs, but for a 501(c)(3) charity gaming cannot be more than an insubstantial part of what it does. A yearly raffle is one thing. A weekly bingo hall that becomes the charity's main activity is another.

Start with your state

The federal tax rules only matter if the game is legal in the first place, and that is a state question. Publication 3079 says plainly that many states and localities regulate gaming by exempt organizations, and that it doesn't cover state or local licensing.

In most states, a raffle is illegal gambling unless a state law allows charities to hold one. Many states do, but with conditions, and those conditions vary a lot: who may hold a raffle, how many a year, what prizes are allowed, whether you need a license or registration first, and how much of the money must go to charity. Some cities and counties add their own rules.

Two examples

These show how different the rules can be. They are not a summary of the law in other states.

California. The Attorney General's Registry of Charities and Fundraisers says only eligible private, tax-exempt nonprofits that have been qualified to do business in California for at least one year may hold raffles. Federal tax exemption alone doesn't qualify an organization; it needs a California state exemption under one of the listed sections. The charity must register each calendar year and receive written confirmation before any raffle activity, including selling tickets. At least 90 percent of the gross receipts from ticket sales must go to charitable purposes in California. Running a raffle over the internet is prohibited, though you may advertise it online. A report on all of the year's raffles is due by February 1. The page also says 50/50 raffles are illegal unless the organization qualifies under a separate sports raffle program.

Texas. The Attorney General says the Charitable Raffle Enabling Act lets qualified organizations, including 501(c) nonprofits that have existed for at least three years, hold up to four raffles a calendar year. Cash prizes are strictly prohibited. A purchased prize may be worth no more than $75,000, and there is no limit on donated prizes. Selling or offering to sell tickets statewide is prohibited, and the Attorney General says "statewide" is generally thought to include the internet.

New York's rules, which depend on how much a raffle is expected to raise, are summarized in our fundraising events guide.

How to find your state's rules

1. Search your state's official website for "charitable raffle" or "charitable gaming." The agency in charge may be the attorney general, a gaming commission, a lottery commission, or the secretary of state.
2. If you can't find it, ask your state charity regulator. They will know who handles gaming, even if it isn't them.
3. Call your city or county clerk and ask whether a local permit is also needed.
4. Get the answer in writing, or save the web page, and keep it with your event records.

Door prizes and free drawings

A drawing where nobody pays for the chance to win, for example a prize drawn from the names of everyone who signed the guest book, is usually treated differently from a raffle, because one of the three parts of a lottery is missing. But the line can be blurry. If people must buy an event ticket, make a donation or purchase something to be entered, your state may treat it as a raffle. Ask your state regulator before you advertise a "free" drawing tied to any payment.

Federal tax rules

Is gaming income taxable?

Usually not, for the occasional raffle. Publication 3079 explains that income from an unrelated business can be taxed, but only when the activity is regularly carried on. It says gaming held only at an annual fundraising event is not regularly carried on, while weekly gaming is.

Even regular gaming may escape the tax. Publication 3079 says gaming isn't treated as an unrelated business if substantially all the work is done by volunteers. The IRS doesn't define "substantially all" here, but it gives an unofficial guideline of 85 percent of the hours worked. "Pay" is read broadly: tips, discounts on tuition, or free meals meant as payment can turn a volunteer into a paid worker. Publication 3079 gives the example of parents who get a tuition reduction for working the games; they aren't volunteers. If you rely on this exception, keep records of hours worked by volunteers and by paid workers.

Certain bingo games have their own exception: the game must meet the legal definition of bingo, be legal where it is played, and be played where for-profit businesses don't regularly run bingo.

If your gross unrelated business income (gross receipts) is $1,000 or more in a year, Publication 3079 says you must file Form 990-T.

Reporting prizes: Form W-2G

When a prize is big enough, you must report it to the IRS on Form W-2G and give the winner a copy. The IRS instructions for Forms W-2G and 5754 (revised January 2026) say these rules apply to church raffles and charity drawings:

• Reporting. File a W-2G when the winnings meet the IRS reporting threshold and are at least 300 times the price of the ticket. For payments made in 2026, the threshold is $2,000. The IRS will adjust it for inflation each year after that, so check before each raffle. You may subtract the ticket price when working out whether you've reached the threshold. If five tickets sell for $1, each ticket counts as a 20-cent wager.
• Withholding. If the winnings minus the ticket price are more than $5,000, you must withhold 24 percent of that amount for federal income tax.
• Noncash prizes. A car or a trip counts at its fair market value. If that value minus the ticket price is over $5,000, withholding applies. Either the winner pays you 24 percent of the value, or the charity pays the tax on the winner's behalf at 31.58 percent.
• No taxpayer number. If a winner who meets the reporting threshold won't give you a correct taxpayer identification number, you must withhold 24 percent as backup withholding.
• Shared tickets. If several people share a winning ticket, the person collecting the prize completes Form 5754 and you prepare a W-2G for each winner.

Publication 3079 was last revised in 2018 and shows an older reporting threshold. Use the current W-2G instructions for the numbers.

Form 990, Schedule G

If your charity files Form 990 or 990-EZ and reports more than $15,000 of gross income from gaming in a year, the IRS instructions say you must complete Part III of Schedule G. It asks for gaming revenue and expenses by type of game, prizes paid, whether volunteers do substantially all the work and what percentage of your workers are volunteers, the states where you ran games, and whether you hold a license in each one. If you aren't licensed in a state where you ran games, you must explain why.

Keep good records

Publication 3079 says organizations that run gaming must keep records of gross receipts, prizes paid and related costs. Keep them until the statute of limitations runs out, which it says is generally three years from the later of the date the return was filed or its due date. Gaming brings in a lot of cash, so the publication also describes good oversight: different people sell the games, count the cash, and pay the bills, and the board reviews the results. For a small raffle that can be as simple as two unrelated volunteers counting the cash together and both signing the tally.

For each raffle, keep:

• your state license, registration or written confirmation
• the raffle rules as published
• ticket numbers printed, sold and unsold
• money collected, counted and deposited, with the bank receipt
• each prize, who donated it and its fair market value
• the winners' names, and any W-2G and withholding paid
• hours worked by volunteers and any paid staff

Raffle checklist

• We found our state's charitable raffle rules on an official site
• We have the license, registration or confirmation we need before selling any tickets
• We checked for city or county rules
• Our prizes are allowed in our state (some states ban cash prizes)
• We won't sell tickets online unless our state allows it
• We know which prizes would need a W-2G or withholding
• Two people count the cash and sign the tally
• We keep records of receipts, prizes, winners and volunteer hours
• Our ticket wording doesn't call the ticket "tax-deductible" (IRS Publication 526 says the cost of raffle tickets can't be deducted)

If you'd like advice from a charity that has run raffles in your state, ask a member charity for help through the Exchange.

General information, not legal, tax or financial advice. Rules change and every situation is different, so check the official sources and talk to a qualified professional before you act.