Responsibilities for Paying Taxes on Raffle Proceeds
Raffles are a game of chance managed through the Massachusetts Lottery Commission. Further information and regulations, as required by the Office of the Attorney General, can be located at: www.masslottery.com or at www.mass.gov; go to Attorney General.
- Does my 4-H group have to file any paperwork with the state or local governments in order to have a raffle?
- Will we have to pay taxes on the raffle proceeds?
- Are there any differences between a raffle that lasts one day, such as a 50/50, and one that last 2 weeks?
- Are there limits in amounts of the ticket price and the prize?
- Who do I contact if we have other questions regarding charitable gaming?
- Is the organization holding the raffle responsible for reporting any information to the federal government?
1. Does my 4-H group have to file any paperwork with the state or local governments in order to have a raffle?
State law requires that charitable organizations follow these guidelines in order to hold a raffle for fundraising purposes. If the raffle prize exceeds $10,000 or a single ticket price exceeds $10, see item number 4 in this document.
A charitable gaming permit must be received from the town clerk's office in the town where the winning number is going to be drawn. Each town charges a fee in a general range of $10-$50 for the permit.
Tickets can still be sold in any town.
The permit is good for one yearand for an unlimited number of raffles.
A tax of 5% of ticket sales must be remitted to the Lottery Commission, which acts as a tax collector.
- Example: Sold 100 tickets for $1 each
Revenue from ticket sales = $100
Calculate tax: $100 ×.05 = $5 of tax that needs to be paid to the lottery commission.
The necessary tax forms will be mailed to the organization once they have registered for the permit.
Additional tax forms can be requested by contacting the Lottery Commission Charitable Gaming Division near you.
- Braintree: (781) 849-5555
- West Springfield: (413) 781-3880
- Worchester: (508) 755-7855
- Woburn: (781) 935-2668
- Fairhaven: (508) 999-6748
- Boston: (617) 742-9470
You may also go to the Lottery website at www.masslottery.com .
Forms must be filled out and remitted to the Lottery Commission no more than 10 days after the winning number is drawn.
If the prize for the raffle was $600 or more, you must fill out a 1099-MISC and send it to the winner of the raffle with a copy to the IRS and the MA DOR. To obtain the 1099-MISC form and instructions you may call 1-800-Tax-Form. You can order the form on-line by going to the business section of the IRS website at www.irs.gov.
3. Are there any differences between a raffle that lasts one day, such as a 50/50, and one that last 2 weeks?
There is no difference between a raffle that begins and ends on the same day (such as a 50/50 raffle) or one with prior sales. They are all treated the same for tax purposes.
For more information regarding Charitable Gaming, go to the Massachusetts Attorney General’s website at www.mass.gov , and select “Attorney General.”
The following regulations must be followed if the Raffle Prize exceeds $10,000 or a single ticket price exceeds $10.
- Organization must disclose the following information either on the raffle ticket or in a written notice given to the purchaser prior to the sale:
- A full and fair description of prize.
- Appraised value of the prize.
- Date/s when the prize will be available for inspection.
- Minimum number of tickets sold (if any) and procedure for refunds should that number not be reached.
- Maximum number of tickets to be sold (if any).
- The fact that the value of the prize shall be treated as ordinary income to the winner for state and federal income tax reporting and that the winner may be required to prepay a portion of the tax liability prior to receiving the prize.
- The fact that the IRS takes the position that no portion of the ticket price will qualify for a charitable contribution for federal income tax purposes.
- Drawing date for raffle.
- Estimated percentage of the ticket price that will be used for charitable purposes in the event only the minimum number of tickets are sold.
- The exact nature of the charitable purpose for which the proceeds will be used.
- Any other facts, the disclosure of which may influence the prospective purchaser not to buy the ticket.
- Each ticket must have a clear and conspicuous warning stating that depositing the ticket or any other material in connection with the raffle in the federal mail is a violation of federal law and may lead to criminal penalties.
Obligations of the Sponsoring Organization
- The organization must notify each ticket purchaser and offer them an opportunity to rescind their purchase if there are any changes in the terms of the raffle such as:
- Change in the nature of the prize.
- Change in value of prize.
- Postponement of the drawing date.
- Sale of greater than the maximum number of tickets.
- If for any reason the raffle is not completed and a prize is not awarded on the scheduled drawing date, the organization must notify the ticket purchasers of that fact and return all money received to the purchasers within 30 days.
- The following people are not allowed to purchase tickets to the raffle or win the prize:
- Members or employees who are directly involved in the promotion and operation of the raffle.
- Immediate family of members or employees who are directly involved in the promotion and operation of the raffle.
Note: Members who only sell tickets are not directly involved and thus they and their families may win.
- Organization must ensure that each ticket has an equal chance to win, and that the winning ticket is chosen at random.
- If the prize is purchased from a third party, the organization must obtain an independent appraisal of the value of the prize from a person licensed to render such appraisals, or if there is no such licensing requirements, from a person qualified to render such appraisals.
- If the prize is purchased from a related party, the price paid must be at cost or less than the appraised value.
- No organization or its employees, members, agents or servants, shall give away tickets to a raffle without receiving the full established price.
- The raffle shall be structured in such a way that it may be reasonably anticipated that the organization will retain a percentage of the gross proceeds, reasonable under the circumstances, and shall retain all of the net proceeds (gross proceeds minus direct raffle expenses) for the purposes stated on the ticket.
Record Keeping, Financial Control by the Organization
- A record keeper must be designated from among the members of the organization. The record keeper must have been a member of the organization a minimum of TWO years, prior to the start of the raffle. Responsibilities include:
- Keeping and distributing of raffle tickets to be sold.
- Safekeeping of paid for and completed ticket stubs.
- Maintenance of the records to follow in item # 3 below for at least two years after the completion or suspension of the raffle.
The record keeper may designate someone to assist with these tasks.
- The raffle ticket should have at least two parts; one for the purchaser and one for the record keeper.
- The record keeper’s part should contain, at a minimum, the purchaser’s name, address and telephone number.
- Both parts need to be imprinted with matching serial numbers. The serial numbers will start at “1” and end at the maximum number of tickets to be sold.
- Both parts of the ticket need to be signed by the seller and the purchaser.
- The record keeper needs to maintain the following types of records:
- a list of members of organization.
- a list of members authorized to sell raffle tickets or participate in any promotion or operation of the raffle.
- all documents, bills of sale, agreements, appraisals or other documents required by law when conducting a raffle.
- a ledger book or other suitable record keeping device listing:
- i. the serial number of the tickets sold.
- ii. purchaser’s name and address.
- iii. date purchased.
Entries will be made when the selling member gives the tickets sold to the record keeper. One should be able to calculate the amount of tickets sold at any time.
- the ticket stubs used to conduct the drawing for no less than two years.
- Financial records must sufficiently show:
- the current amount of proceeds received on account for the raffle.
- all expensed related to conducting the raffle including:
- Printing costs.
- Advertising costs.
- Lawyers fees.
- Appraisal costs.
- Insurance premiums.
- Any other costs reasonably attributable to the raffle.
- Braintree: (781) 849-5555.
- West Springfield: (413) 781-3880.
- Worchester: (508) 755-7855.
- Woburn: (781) 935-2668.
- Fairhaven: (508) 999-6748.
- Boston: (617) 742-9470..
Or go to the Mass Lottery Commissions website at: www.masslottery.com.
6. Is the organization holding the raffle responsible for reporting any information to the federal government?
If the prize for the raffle was $600 or more, you must fill out a 1099-MISC and mail the correct sections to the winner of the raffle, the IRS (federal) and the Department of Revenue (State).
You may obtain the 1099-MISC Form and instructions by calling 1-800 Tax-Form or going to www.IRS.gov.
Treasurer’s Checklist for Raffles
Check the following steps to ensure that you have complied with all regulations and procedures.
Before you start:
- Contact the Massachusetts Lottery to obtain all the lottery tax forms. Call the headquarters in Braintree at (781) 849-5555 or go to www.masslotery.com.
- Contact the town clerk’s office in the town where the winning number will be drawn to inform them that you will be conducting a raffle and obtain a permit.
- If the raffle prize is greater than $10,000 or an individual ticket price exceeds $10 then you must follow the rules for large raffles (see item number 4 in this document).
- As you collect money, use the witnessed cash count forms (available on this website).
Taxes and record keeping:
- After the raffle is over, fill out the tax forms and mail them to the lottery commission. The tax due is 5% of your proceeds.
To calculate the tax, multiply the total amount of money collected by .05. For example, if you collected $100, the amount to be paid is $100 x .05 = $5.
- You must issue a 1099-MISC if the raffle prize is valued at $600 or more. These are typically filled out at the end of the year but you must obtain the winner’s name, address and social security number (and other contact information such as their phone number and email address so that you can reach them later, if necessary.)