Payments and withholding you made to the taxing agency that sent you the refund, in the year the refund applied to. In other words, if the refund was from the state for tax year 2016, report the state payments and withholding you reported on your 2016 tax return.
The software is asking to determine if the refund is taxable on your 2017 return. If the refund is from your 2016 return and you used the standard deduction, it is not taxable. If you itemized, but took the state sales tax as a deduction, rather than the state income tax, the refund is not taxable. If you did itemize and took state income tax as a deduction on your schedule A, and now you have a refund of that tax, it may be taxable. If this is the situation you are in, the software needs to know the withholding and any other payments you made to the taxing authority (in your case the state) on your 2016 federal tax return. You can find this information on that year's Schedule A line 5a. Again, if 2016 Schedule A has line 5b, rather than 5a, the state refund is not taxable.
