A raffle is an appeal for money consisting of a prize, the element of chance, and consideration or payment for the right to participate. The cost of a raffle ticket is not tax deductible; therefore, it must be classified as non-gift revenue. The IRS notes that the only amount eligible for deduction purposes is the difference between the gift and the total of all the prizes offered in the raffle, whether the raffle is won or not.
- Submit all literature advertising events to the attention of the USM Foundation Staff Accountant and Grant Administrator for review prior to printing the literature or it may be impossible for the USM Foundation to accept and deposit the funds. He/she will inform the department as to whether the literature meets the criteria or if it needs to be modified.
- State law regulates raffle activities. The USM Foundation is registered in the State of Maryland and any appeal for money to Maryland residents is covered under that registration. However, there may be local regulations that require a license. It is the responsibility of the unit holding the raffle to ensure all local regulations have been followed.
- The value of prizes received by the winner must be included in calculating the winner’s gross income. If the prize is in the form of goods and/or services, the fair market value of those good and/or services must be included.
- The USM Foundation must be informed of the value of the prize, and the name, address and social security number of the winner(s). That information is reported on a Form W9, subject to the following guidelines:
- If the single prize has a value of $600 or less, the USM Foundation is not required to report or withhold.
- If the single prize has a value of $600 or more, but not more than $5,000, the USM Foundation must withhold 31% backup withholding if a W-9 is not completed.
- If the value is $5,000 or more, the USM Foundation must withhold 28%.
- Note: Withholding is required even if the prize is not cash. The prize can be grossed up so that the tax can be paid or the winner can remit the amount to be withheld to the USM Foundation. The USM Foundation must withhold the prize if there is no way to pay the taxes.
- Note: If a raffle is held at an event and the raffle is only open to the attendees of that event then the entire event registration is considered a non-gift. The value of the event ticket beyond any other calculated fair value of the event is considered the cost of participating in the raffle.