Do You Pay Taxes on a 50/50 Raffle?

Winning a 50/50 raffle prize comes with tax implications. The Internal Revenue Service (IRS) has specific rules for these types of winnings, which are considered taxable income. Understanding your obligations can prevent issues when you file your annual tax return.

Taxability of Raffle Winnings

The IRS views money from a raffle as gambling income, placing it in the same category as winnings from lotteries or casinos. For a 50/50 raffle, the taxable amount is the cash prize you receive. For example, if $10,000 was collected and you win your half, the full $5,000 is taxable income before accounting for the cost of your ticket.

This income is subject to federal income tax at your regular rate. The amount of tax you owe depends on your total annual income and tax bracket, as it is added to your other income for the year.

Required Tax Forms and Reporting Thresholds

The organization that paid the prize may be required to send you and the IRS a Form W-2G, “Certain Gambling Winnings,” which reports the amount you won and any taxes withheld. An organization must issue this form if your winnings are $600 or more and are also at least 300 times the price of the wager.

For example, if you bought a $5 ticket and won $1,600, you would meet both the $600 threshold and the 300-times-the-wager rule. This triggers the requirement for the organization to issue a Form W-2G.

The form will contain the payer’s name and tax information, your name and Social Security number, the gross amount of your winnings, and any federal income tax withheld.

Federal Tax Withholding on Winnings

Separate from W-2G reporting, there are rules for mandatory tax withholding. If your net raffle winnings exceed $5,000, the organization must withhold 24% for federal income tax. This is a prepayment of the tax you will owe.

The withholding is based on net winnings, which is the prize amount minus the cost of the ticket. For example, winning $5,010 from a $10 ticket results in $5,000 of net winnings, so no withholding is required. However, winning $5,011 from that ticket means your $5,001 in net winnings would trigger the withholding.

Reporting Winnings and Deducting Losses

You must report all gambling winnings on your federal tax return, even if you do not receive a Form W-2G. This income is reported on Schedule 1 of Form 1040 as “Other Income.” The total amount of your gambling winnings for the year is entered on this line.

You can deduct gambling losses, but only if you itemize your deductions on Schedule A instead of taking the standard deduction. The amount of your deductible losses cannot exceed the total amount of your reported gambling winnings for the year. For instance, if you had $2,000 in raffle winnings and $3,000 in other gambling losses, you could only deduct $2,000 of those losses.

State Tax Considerations

In addition to federal income tax, your raffle winnings may also be subject to state and local income taxes. The tax treatment of gambling income varies by state, as some have no income tax while others tax winnings at their regular rates. States may also have their own reporting and withholding thresholds that differ from federal rules.

The paying organization might be required to withhold state taxes in addition to any federal withholding. To determine your specific obligations, you should consult your state’s department of revenue or a tax professional.