Donation crowdfunding laws in the United States explained

How donation crowdfunding laws split between states and Washington

Donation crowdfunding laws in the United States do not sit in a single national code. The federal government handles taxation, payment reporting and deceptive trade practices, while each of the fifty states decides how charities may ask the public for money inside its borders. A campaign that reaches donors in many states can therefore touch many sets of rules at once.

The type of organiser matters more than the type of website. A charity recognised as tax-exempt, a nonprofit that is not tax-exempt, a business, a group of friends and a single person raising help for a family are treated differently by the Internal Revenue Service and by state officials. The same donate button can sit on very different legal footing depending on who stands behind it.

American givers are used to this layered system, which is why a campaign page is expected to say clearly who is asking and where the money will go.

State charitable solicitation laws and registration

Most states require a charity to register before soliciting donations from residents, and many ask for annual financial filings. The office that handles this is usually the state attorney general or the secretary of state, depending on the state. These charitable solicitation laws were written long before the internet, yet states generally take the view that an online appeal that reaches their residents can fall within them.

Some states exempt small charities, religious organisations or one-off local appeals, but the exemptions vary and are not uniform. Many charities use a multistate registration process and keep a compliance calendar so that renewals are not missed. The National Association of State Charity Officials brings these regulators together and is a useful place to find the right state office.

Fundraisers who hire professional solicitors or commercial co-venturers often face extra filing duties, including written contracts and disclosures about how much of each gift reaches the cause.

IRS treatment of gifts and tax receipts

A donation is generally tax-deductible for a giver only if it is made to a qualifying organisation, such as a charity recognised under section 501(c)(3) of the Internal Revenue Code, and only if the giver itemises deductions and holds the right paperwork. The IRS publishes its rules in guides such as Publication 526 on charitable contributions and Publication 1771 on substantiation and disclosure.

A gift to a private individual is not a charitable deduction. If a neighbour sends money to a family after a fire, the gift is personal, no matter how sympathetic the cause. A page that is run by an individual should avoid wording that implies donors will get a tax receipt. Wording matters here: promising a deduction that the law does not allow is one of the most common errors in complying with US fundraising laws.

Charities that receive larger gifts are expected to send written acknowledgements, and when a donor receives something of value in return, such as a dinner ticket, the acknowledgement must describe it. The IRS Tax Exempt Organization Search tool lets donors confirm that a charity is eligible to receive deductible gifts.

Personal campaigns versus 501(c)(3) charities

People often search for donation crowdfunding laws because they are raising money for medical bills, funeral costs or a disaster, and no charity is involved. In those cases the organiser collects money from supporters and spends it on a stated need. Whether such money is a taxable receipt, a gift or something else depends on the facts, and the IRS has published general information about crowdfunding that explains the main questions.

Gift tax rules, where they apply, generally fall on the giver rather than on the person receiving help, and most small gifts never trigger them. Organisers who are uncertain about their own position should speak to a qualified tax adviser or consult the IRS website instead of guessing.

A charity can also host a campaign for an individual, for example a hospital foundation raising funds for a patient. In that case the charity holds the money and decides how it is used according to its own rules, which gives donors more protection than a purely personal page. Such an arrangement is a common way to combine donation crowdfunding with the safeguards of a registered nonprofit, including audited accounts and a board that answers for the spending.

Reporting duties and online giving rules for platforms

Payment processors that handle crowdfunding money report certain payments to the Internal Revenue Service on information forms such as Form 1099-K, and those reporting thresholds have changed more than once in recent years. An organiser who receives such a form should keep records that show what part of the money was a gift for others, what was a reimbursement and what, if anything, was income.

Registered charities file their own annual returns with the IRS, and the public can usually read these through services such as Candid, formerly known as GuideStar, and Charity Navigator. The BBB Wise Giving Alliance offers charity reviews against published accountability standards.

Platforms such as GoFundMe, Givebutter, Donorbox and Zeffy run in the United States with different models, some oriented to personal causes and others to nonprofit fundraising. Each publishes terms on payouts, identity checks and refunds, and those terms are part of the legal picture for any campaign that uses them.

Consumer protection and fraud enforcement

The Federal Trade Commission enforces the prohibition on deceptive practices, and state attorneys general bring their own actions against sham charities and misleading appeals. Claims about where the money goes, who benefits and what has been achieved must be truthful, and a campaign that invents a story to attract gifts can lead to civil and criminal consequences.

Fake fundraisers frequently follow disasters and tragedies. Donors can protect themselves by reading who runs the page, checking whether a charity appears in federal and state databases, and avoiding requests to pay by gift card, cash app transfer or wire to unknown recipients. These are classic signs that a request is not what it seems.

Suspected fraud can be reported to the Federal Trade Commission and to the attorney general of the state where the donor lives.

Online giving rules worth following in practice

Beyond the law, a few habits make donation crowdfunding easier to defend. State the purpose in plain terms, name the person or charity that will receive the funds, describe what will happen with any surplus and update donors when circumstances change. Keep a simple ledger of money received and spent.

Organisers who work with a charity should ask for a written agreement describing who owns the campaign and who may spend the proceeds. Those who act alone should avoid mixing campaign funds with personal accounts if they can use a separate account instead.

Because both federal and state rules are revised from time to time, anyone preparing a campaign should read the current guidance from the Internal Revenue Service and from the state office that regulates charities where they live.