The 501 S(c)ene

The latest view on not-for-profit accounting issues

Raffles – Tax implications and withholdings

Holding a raffle at a special event is common amongst non-profits. But did you know there are tax implications and responsibilities for the winner and nonprofit organization? Here are a few things to keep in mind as you are preparing to hold a raffle.

Nonprofit organizations report raffle prizes to the recipient and IRS on Form W-2G if:

  • The prize paid out is $600 or more or
  • The payout is 300 times the amount paid for the raffle ticket

The Organization will need to complete a W-2G and:

  • Issue a W-2G to the prize recipients by January 31 of the year after the year of the raffle.
  • Submit W-2G to the IRS by the last day of February of the year after the year of the raffle (this will be done on your annual Form 1096 submission).

The Organization could have withholding requirements:

  • If a person wins >=$600 but <$5,000 and the winner doesn’t provide a taxpayer identification number, the organization must withhold 28% of the winnings minus the cost of the raffle ticket
  • If a person wins >=$5,000, the organization must withhold 25% of the winnings minus the cost of the raffle ticket (For non-cash prize winders the winner must pay the organization 25% of the fair market value of the prize minus the price of the raffle ticket)

Learn more about raffle taxes

So as you are preparing for your next raffle keep the above in mind and don’t forget to request the raffle prize winner complete Form 5754 (Statement by Person(s) Receiving Gambling Winnings) so you can issue all the proper documentation. You will need to keep Form 5754 for four years as the IRS can request it for inspection. Also, don’t forget, if the organization chooses not to withhold or fails to withhold correctly for prize winnings, it is liable for the tax.

 

Jarrod White, CPA