Tim has state income taxes of $4,500 withheld from his salary during 2017. On his 2017 federal income tax return, Tim properly deducts the $4,500 as state taxes paid. Upon filing his 2017 state income tax return, he determines that his actual state income tax for 2017 is only $3,900, and the state sends him a $600 refund. What are the tax consequences of the refund? Explain in terms of the concepts presented.

How would your answer change if Tim's actual state income tax is $4,900 and he has to pay $400 with his state return?