All winnings from 50/50 raffles are considered taxable income by the Internal Revenue Service (IRS) and must be reported by the winner. Organizations conducting such raffles also have specific reporting and, in some cases, withholding obligations, particularly for larger prize amounts.
Winner's Tax Obligation
For individuals, all gambling winnings, including cash prizes from 50/50 raffles, are fully taxable income. This applies whether the winnings are from lotteries, horse races, casinos, or raffles.
- Reporting: Winners must report all their gambling winnings on their federal income tax return (Form 1040, Schedule 1, Line 8). It's crucial to keep accurate records of winnings and losses.
- Deducting Losses: While winnings are taxable, gambling losses can generally be deducted, but only up to the amount of gambling winnings reported and if you itemize deductions on Schedule A (Form 1040). Keep detailed records of wins and losses.
Organization's Responsibilities
Organizations, whether for-profit or tax-exempt, that conduct 50/50 raffles and pay out prizes have specific responsibilities regarding reporting and withholding.
Reporting Winnings (Form W-2G)
Organizations must report certain raffle winnings to the IRS using Form W-2G, Certain Gambling Winnings. This form is provided to the winner and the IRS.
Generally, a Form W-2G is required for raffle winnings when:
- The winnings are $600 or more, AND
- The winnings are at least 300 times the amount of the wager.
- Example: If a raffle ticket costs $1, and the prize is $600, a W-2G would be required because $600 is at least 300 times the $1 wager.
Withholding Requirements
In addition to reporting, organizations may be required to withhold federal income tax from larger raffle prizes.
- Regular Gambling Withholding: An organization that pays raffle prizes must withhold 25% from the winnings and report this amount to the IRS on Form W-2G. This regular gambling withholding applies to winnings of more than $5,000. If the organization fails to withhold correctly, it is liable for the tax.
- Backup Withholding: In some cases, backup withholding may apply, typically at a rate of 24%, if a winner does not provide their Taxpayer Identification Number (TIN) when required.
Tax-Exempt Organizations and Raffles (Unrelated Business Income)
For tax-exempt organizations (e.g., 501(c)(3) charities) conducting 50/50 raffles as fundraisers, the income generated generally does not count as Unrelated Business Taxable Income (UBIT) if certain conditions are met.
- Exceptions: Raffle income is typically exempt from UBIT if the raffle is conducted by substantially all volunteer labor or if it falls under an exception for qualified public entertainment activities. This allows many non-profits to use raffles as a fundraising tool without incurring UBIT.
- Form 990 Reporting: Tax-exempt organizations must still report their raffle activities and income on their annual information return, Form 990.
Summary of Key Thresholds and Actions
| Prize Amount | Winner's Action | Organization's Action (IRS Form) |
|---|---|---|
| Any Amount | Reports all winnings as taxable income on Form 1040. | Keeps records of winners and prize amounts. |
| $600 or more | Reports winnings on Form 1040. | Issues Form W-2G to winner and IRS (if 300x wager rule met). |
| More than $5,000 | Reports winnings on Form 1040. | Withholds 25% of winnings and reports on Form W-2G. |
Organizations planning 50/50 raffles should also be aware of any state and local gambling laws, which can vary significantly and may include licensing or registration requirements.
