What a Charity Raffle Keeps, and the Rules Before You Run One

Two questions arrive together, and the answers point in opposite directions. Can you legally run a raffle, and is it worth running? The first is a matter of state law. The second has an answer in the tax returns, and it is less flattering than the fundraising literature suggests.

Across 256,539 charities, 6,723 report gaming income, about one in forty. The typical one keeps 58.1% of what it takes in, and 5.9% of them spend more on gaming than gaming brings in.

The legal answer, which is not a national one

A raffle is gambling. Selling a chance to win a prize is regulated under state law, and that is where the rules live: some states allow charitable raffles with a licence, some allow them only for certain organization types or with limits on prize value and frequency, and a few do not permit them at all. Registration is often with the state’s charity regulator or attorney general, sometimes with a gaming commission, and it is usually required before any ticket is sold rather than after.

Selling tickets online is the sharper question, and it is not settled by your own state alone. Several states that allow raffles prohibit online ticket sales specifically, and selling into another state exposes you to that state’s rules as well. A raffle advertised on a public website is, in practice, offered everywhere. Organizations that run online raffles at scale generally restrict entry by state and can prove it, which is a compliance commitment rather than a checkbox.

The practical sequence is to confirm your own state’s position with its charity regulator, decide whether you are selling only in person or online, and price the licensing, bonding and reporting into the budget before deciding whether it is worth it. Which brings us to the returns.

What a raffle actually keeps

The spread is the story. The middle half of organizations keep between 22.3% and 91.4% of gross gaming income, which is not a range you can plan against. A raffle with a donated prize and volunteer sellers keeps nearly everything. A dinner-and-casino night with a purchased prize, a venue and a licence can keep almost nothing.

One caveat belongs here rather than in a footnote. 17.5% of gaming filers report gross income with no direct expenses at all, which shows up as keeping 100%. Excluding them, the median falls from 58.1% to 48.6% and the middle half becomes 13.8% to 73.5%. The honest headline is that a typical raffle returns about half of what it takes, and the quartile above that is partly a reporting artifact.

Size barely changes participation, which surprised us: between 2.32% and 3.18% of organizations run gaming at every size. What changes is competence. Median kept rises steadily from 49.0% at the smallest organizations to 73.9% at the largest, and the smallest are also likeliest to run the biggest raffle in absolute terms, a median gross of $35,590 against $24,165 for organizations over $25m.

The sector total says something different, and both are true

Charitable gaming is a $5.3 billion business that returns $597m to charity, an aggregate keep rate of 11.2%. That figure and the 58.1% median are both correct and they describe different things.

The reason is concentration: the top 1% of operators account for 39.8% of all gaming income and the top 5% for 73.8%. Those are bingo halls and pull-tab operations running continuous high-turnover gaming with prize payouts that must stay competitive, so they move enormous sums at a few cents of margin. Everyone else runs an annual raffle and keeps about half of it.

If you are deciding whether to run a raffle, the median is your number. If you are writing about the sector, the aggregate is. Quoting the aggregate at a parent teacher association planning its annual raffle would be wrong, and so would quoting the median at a bingo hall.

The tax rules that catch organizations out

Four rules produce most of the trouble, and none of them is obvious.

Raffle tickets are not deductible donations. The buyer is purchasing a chance to win, so no part of the price is a charitable contribution, even the part that exceeds the prize’s value. Saying otherwise on a ticket or in a thank you letter is a substantiation problem you have created for the donor, and it is the single most common error in this area.

Large prizes have to be reported, and sometimes withheld on. The organization files Form W-2G when the prize, less the ticket price, is $600 or more and at least 300 times the ticket price. Above $5,000 on the same 300 times test, federal income tax withholding applies at 24%, which the organization must remit whether or not it collected it from the winner. If the winner will not give a taxpayer identification number, backup withholding at 24% applies instead.

A noncash prize does not avoid this. For a car or a holiday the withholding is calculated on fair market value, and the organization either collects it from the winner before handing the prize over or pays it itself, which raises the effective cost of the prize. Deciding which, in advance and in writing, is what keeps the moment of handover from becoming an argument.

Gaming can be taxable business income. Regular gaming is a trade or business that is not related to an exempt purpose, so it can create unrelated business income tax. Bingo has a statutory exception where it is legal and not conducted commercially nearby, and activity run substantially by volunteers has its own exception, which is why a volunteer-run annual raffle usually escapes and a staffed weekly operation may not.

The returns show the shape of that. 19.3% of gaming organizations report unrelated business income over $1,000, against 4.9% of all filers, so gaming organizations are roughly four times as likely to be in that position. Gaming gross over $15,000 also triggers Schedule G on the Form 990, and unrelated business income means a Form 990-T as well as the 990.

So is it worth running?

Three questions decide it, and the data answers the third.

Is the prize donated? Among organizations under $250,000 this is most of the difference between the 75th percentile keeping 85.1% and the 25th keeping 11.5%. A donated prize costs the raffle nothing and the donor gets a deduction for the property. A purchased prize is the largest line in direct expenses, and it is fixed whether you sell 200 tickets or 2,000.

Who is selling? Volunteer selling keeps the cost near zero and protects the volunteer labour exception on the tax side. Paid staff time rarely shows in the direct expenses line, which means the real cost of a raffle is understated in every figure on this page, including ours.

What else could that effort raise? This is the comparison people skip. The median gaming organization grosses $30,565 and nets $15,315. For most organizations, the same volunteer hours spent on direct asks to existing donors return more and build something that repeats next year. A raffle’s value is often the people it reaches rather than the money, and that is a legitimate reason to run one, but it should be the stated reason rather than the consolation.

Where gaming does matter financially is at small organizations: net gaming income is a median of 9.3% of total revenue for gaming organizations under $250,000, and 79.2% at the 90th percentile. For a handful of small charities this is most of the budget, and for them the compliance questions above are not optional.

Method and limits

Source is the IRS Statistics of Income annual extract of tax-exempt organization financial data, Form 990, processing year 2024, a census of processed returns rather than a survey. The population is 501(c)(3) organizations with total functional expenses of $25,000 or more, 256,539 organizations, of which 6,723 report gross gaming income. The analysis script is published.

Gaming here is Part VIII line 9a gross income and line 9b direct expenses, which include prizes. The keep rate is one minus 9b over 9a. This ratio is computable in a way the equivalent for fundraising events is not: a gala ticket splits into a deductible gift and an exchange portion reported on different lines, while a raffle ticket is not a deductible gift at all, so line 9a is the whole intake.

Four limits. Staff time is not in direct expenses, so real margins are lower than these. 17.5% of gaming filers report no direct expenses, which inflates the upper quartile, and the sensitivity test above is the answer to that. Organizations filing Form 990-EZ or 990-N are absent, and small raffles are concentrated in exactly that group. And the extract carries no state, so nothing here can be cut by the legal regime the organization operates under.

Nothing on this page is legal advice, and the legal position genuinely differs by state. Confirm yours with the state regulator before selling a ticket.

This is reference information, not legal or tax advice. Rules vary by state and change over time. For a decision that carries real consequences, check the current text at irs.gov or your state registry, and talk to a nonprofit attorney or CPA.