He didn't deny it
Clinton first raised the prospect of Trump not paying any federal income tax during a discussion of why Trump hasn’t released his tax returns (Clinton based the allegation on several returns Trump once provided in order to receive an Atlantic City casino license, although he did pay federal income tax in some of those years). Soon after, the two began debating the large federal debt, with Clinton quipping that perhaps it would be smaller if Trump paid income tax.
Trump’s reply? “If I did, it would be squandered.”
A reporter followed up with Trump after the debate, asking if this was an admission that he doesn’t pay federal income tax. He didn’t deny it.