In 2019, Alejandro received a refund from his state department of revenue for the amount of state taxes that he overpaid in 2018. He was able to reduce his 2018 federal tax liability by itemizing and claiming a deduction for stats and local income taxes paid that year. On his 2019 return, Alejandro may need to report all or part of the state tax refund that he received in 2018 as: A negative credit. A negative deduction. A refundable credit. Taxable income.