The Definitive Legal Guide to Running a Sweepstakes

A sweepstakes is a game of chance promotion in which winners are chosen at random from all eligible entries. Games of chance require no skill to enter and, importantly, provide equal parity to any eligible person that wants to participate; this includes no purchase requirements to enter.

Because they’re easy to enter and open to a broad audience, sweepstakes are one of the most popular ways for brands to create excitement, grow an audience, and collect first-party data with minimal effort from participants.

Official rules lay out the compliance guidelines of your entire promotion. They communicate exactly how it will run and set out the terms of participation for everyone who enters, establishing its integrity and fairness while protecting both your brand and participants.

A sweepstakes must be free and open to everyone eligible, so the rules have to spell out every way to enter. Wherever a purchase option exists, one of these ways must be a free alternate method of entry (AMOE), so the promotion isn’t treated as an illegal lottery. Beyond entry, the rules also cover a range of other terms, from who is eligible to enter, including age and residency requirements, to how and when winners are selected and notified. Other obligations apply at the state and federal level, from bonding and registration in certain states to IRS reporting on larger prizes.

This guide focuses on the laws specific to sweepstakes; for how they differ from skill-based contests, see our blog on the difference between Sweepstakes vs. Contests.

What this guide covers:

• What your official rules must include
• How state laws differ and which states require bonding and registration
• No-purchase-necessary rules and how to offer a compliant alternate method of entry (AMOE)
• How prize taxes and IRS reporting work
• A pre-launch compliance checklist

1. What has to be included in sweepstakes official rules?

Your official rules are the legal contract that defines your sweepstakes, protects you and your entrants and defines the integrity of the promotion. This is the set of terms that regulators, platforms, and consumers hold you to. Compliant rules include, at minimum:

• ‍Eligibility: This defines who can enter your promotion. This includes, at least, age and residency requirements, and can include other requirements such as loyalty members, card holders, and other segmentation criteria. ‍
• Dates: The window in which your promotion is open for entry including a clear start and end date (and time).‍
• How to enter: The definition of steps that users must take to enter your promotion across all entry methods, free and paid. This also defines the limits for how many entries users can earn across each method and the frequency they can enter (such as daily, weekly, monthly, once).‍
• Odds: This provides clarity for users on how the odds of winning are calculated. For most sweepstakes the odds of winning will be based on the total number of valid entries. ‍
• Prizes: All sweepstakes rules must clearly define the prizes available including the quantity of prizes and the approximate retail value (ARV).‍
• Winner selection: The selection process for winners, including dates of selection and any redemption requirements, should be spelled out clearly within your official rules. ‍
• Sponsor: The full legal name and address of the promotion sponsor should be clearly stated. ‍
• Required disclosures and releases: No-purchase-necessary disclaimers, any state-specific requirements, and releases for involved parties, should be clearly called out where applicable within your official rules.

One more key practice: your abbreviated rules, the short version of your rules for use across marketing materials,  must accurately summarize the full rules and point to where the complete version lives. Letting the short and long versions drift apart is one of the most common, and most avoidable, compliance failures.

Learn More: Everything your official rules need to include  ·  Rules specific to social media giveaways

‍2. Do sweepstakes laws vary by state?

Federal rules set the core guidelines for game of chance promotions, but several states layer on their own compliance requirements. A promotion that’s compliant nationally can be missing compliance requirements at the state level and create risk for program sponsors. Common state-level variations:

• ‍What counts as consideration: some states treat a required store visit or other non-monetary acts as consideration‍
• Eligibility and disclosure: Some states have an older age of majority and state-specific age rules or mandated language‍
• Category-specific rules: Select states have added restrictions for alcohol, tobacco, and high-compliance industries requiring additional filings and approvals prior to launch‍
• Registration and bonding: Required in select states for prize pools greater than $5,000, promotions may need to be registered with surety bonds filed (see additional information below)

Because the differences are granular and change over time, the practical question is less “what’s the law?” and more “what does each state where I’m running require at this time?”

Learn More: The full state-by-state breakdown

Which states require sweepstakes bonding and registration?

If your prize pool is large enough, some states require you to register your sweepstakes and post a surety bond before it launches:

• Florida requires registration and bonding for a prize pool over $5,000
• New York requires registration and bonding for a prize pool over $5,000
• Rhode Island requires registration and bonding for retail promotions over $500

*Note for Arizona: Skill-based contests that require a purchase or entry fee must be registered with the Arizona Attorney General. Sweepstakes do not require registration or bonding in Arizona.  

Whether you’re required to register also depends on the prize’s approximate retail value (ARV), whether the promotion is open to the public or a closed audience, and your retail presence in the state.

After the promotion ends, the sponsor (or their administrator) files the winners list with each registered state and releases the bond. Because thresholds vary and deadlines are firm, most brands have their administrator handle it rather than manage state filings in-house.

Learn More: Where you have to register and bond, and how it works

3. How can I run a legal purchase-to-enter sweepstakes?

The foundational rule in sweepstakes law: winning can’t depend on an entrant spending money. A promotion crosses into an illegal lottery when it combines all three of these elements:  

1. ‍Prize: something of value to win‍
2. Chance: winners are selected randomly
3. Consideration: entrants must make a purchase (or provide something of comparable value) for a chance to win

Since an offered prize and a chance to win based on entries are what fundamentally define a sweepstakes, the element of control is whether consideration is introduced. To keep your promotions compliant, a purchase can never be required to enter or to win, there must be a free way for users to earn the same volume of maximum entries, thus avoiding consideration. There are two ways to do that:

• ‍Keep the promotion free to enter entirely: Include no purchase requirements at any point, for anyone. Entry is open to all, so there’s no paid path an entrant could be shut out of.‍
• Alternate Method of Entry (AMOE): when the promotion is tied to a purchase, you must offer a free entry path and create equal parity between those entering for free, with the same odds of winning. This is where “no purchase necessary” language comes in, clearly signaling the free route in your rules and advertising.

Get this right and most of your legal exposure disappears.

Learn More: What "no purchase necessary" really requires  ·  How to offer a compliant alternate method of entry  ·  Where the line into an illegal lottery is drawn

4. Do you have to pay taxes on sweepstakes prizes?

Within the United States, the IRS treats all prizes as taxable income regardless of their value. Winners have an obligation to report prizes won as miscellaneous income when filing taxes each year. Additionally, program sponsors have a filing and reporting obligation for prizes above a specific threshold.

• ‍The reporting threshold is rising: for prizes awarded in 2026 and later, it rises from $600 to $2,000, with inflation adjustments starting in 2027. Because the bar is higher, mid-value prizes between $600 and $2,000 that would have required a 1099 in 2025 no longer do.  ‍
• Above the IRS reporting threshold, it is the obligation of the payor of the prize to collect a W9 from winners and issue the winner a corresponding Form 1099. It is also recommended to have winners of high value prizes complete a winner declaration and release of liability.

For high-value prizes, many sponsors choose to "gross up" the prize, adding a cash amount to help offset the taxes the winner will owe. Because that added cash is itself taxable, a gross-up reduces the winner's out-of-pocket burden rather than eliminating it entirely. For a large prize, though, it can make a meaningful difference and a better winner experience.

A couple of important caveats. This section covers US tax rules; prizes awarded to winners outside the US, or promotions run entirely internationally (where neither the sponsor nor the entrants are US entities), can carry other requirements, and RTM can coordinate with international tax experts in those cases.

Because tax rules change and depend on your specific situation, treat this as general information rather than tax advice. Realtime Media is not a tax advisor, and you should confirm your obligations with a qualified tax professional before relying on any of the above.

How you handle taxes shapes both your winner experience and your reporting obligations.

Learn More: How gross-ups work and when to use them

Your pre-launch compliance checklist

Before you launch, confirm:

• The promotion type is confirmed (sweepstakes, contest, or instant win), since the rules requirements and best practices differ for each.
• Consideration is removed, either by keeping entry free or by offering a valid alternate method of entry (AMOE) with equal odds wherever a purchase is involved.  
• Prizing is selected, with approximate retail values confirmed.
• Your abbreviated rules are drafted and present across marketing materials where applicable.
• State-specific requirements are checked for every state where the promotion runs.
• Registration and bonding are filed in any state that requires them for your prize pool.
• Prize-tax reporting is set up, including Form 1099 handling and winner affidavits.
• A privacy policy is in place governing how entrant data is handled.
• Winner outreach, notification, and prize redemption requirements are set.
• Prize fulfillment logistics are planned.

Related sweepstakes topics: Sweepstakes vs. Contests  ·  Data Privacy for Sweepstakes  ·  International Sweepstakes Law

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