State and Local Income Taxes Lines 1 Through 3 You can deduct state and local income taxes you paid or that were withheld from your salary during 2010 on income connected with a U.S. trade or business. If, during 2010, you received any refunds of, or credits for, income tax paid in earlier years, do not subtract them from the amount you deduct here Instead, see the Instructions for Form 1040NR, line 11, on page 12.