Are federal income tax refunds included in gross income?

Federal income tax refunds are not included in gross income because they are considered a return of taxpayer money that was overpaid to the government in the previous tax year. When a taxpayer receives a refund, it's essentially money they had already paid in taxes and thus does not represent new income.

To clarify, the tax system generally follows the principle that income must be taxed in the year that it is earned. Since the refund is merely a reallocation of funds that were previously taxed, it doesn’t qualify as income in the context of gross income for tax purposes.

It’s also important to note that if a taxpayer itemized deductions in the previous tax year and received a tax benefit from deducting state and local taxes, a portion of the refund might need to be reported as income in some cases. However, this does not apply universally and does not affect the general rule about refunds being excluded from gross income. Thus, refunds themselves do not contribute to gross income.