Hitting the jackpot while gambling may feel a lot more like manna from heaven than remuneration for a good day’s work, but as far as the government is concerned, those winnings might as well be wages as the results of wagering.

In short, the proceeds are ordinary income on which the winner owes income tax. By “gambling,” the federal income tax code means coming out ahead in a wide range of betting settings, such as casinos, racetracks, and lotteries. Not only that, but income tax will be imposed where someone wins a prize instead of cash, in which case the provider of the prize will put a fair market value on the item won and report that to the IRS.

As a method of ensuring compliance, gaming establishments are required to report to the IRS, on Form W-2G, certain winnings, such as $1,200 or more from a slot machine or $5,000 or more won in a poker tournament. Also, in many instances, 25% of winnings over $5,000 will be withheld and sent to the IRS, not unlike the treatment of wages from employment.

Gamblers who are not in the trade or business of gambling need to report any of their winnings as “other income” on their Form 1040s. In some cases, especially where people have won large sums of money in lotteries, they may decide to sell the rights to future payouts from the lottery so as to reap most of the benefits from their good fortune immediately rather than having to wait a period of years for annual payouts. Depending on the individual, this may be a prudent choice to make, but it probably should not be driven by income tax ramifications. The money received from such a sale of the right to future payments is taxed as ordinary income, notwithstanding arguments made by some in that position that such a sale should receive capital gain treatment under the tax laws.

But what of the gambler who doesn’t strike it rich but, rather, in the end has mainly squandered his money in pursuit of quick wealth, typically winning some and losing some along the way? There is no tax benefit, strictly speaking, to gambling and losing. However, if the gambler keeps good records of his losses for a given tax year, he may be able to offset taxable winnings with his losses, thereby reducing his income tax bill.

To take this approach, the taxpayer must itemize deductions on Schedule A of Form 1040. The gambling losses can be claimed up to the amount of reported gambling winnings. The appeal of this strategy is slightly diminished by the fact that gambling winnings will increase adjusted gross income (AGI) and that a higher AGI may make it more difficult to claim other tax deductions and credits.

So, if you are a regular rail bird at the local track, you just have that gut feeling that using a lucky set of numbers will do the trick in the state lottery, or high-stakes bingo is your thing, enjoy yourself, but understand from the outset that if you strike it rich, Uncle Sam will want his piece of that action. You can bet on it.