I'm not an expert, but I can tell you what I saw in my case with Fidelity Investments. If the T-Bill has a coupon amount, the Accrued Market Discount will be reported on your 1099-B as a capital gain, and the coupon interest on your 1099-INT. TurboTax then converts the Accrued Market Discount gain into interest and includes it on your Schedule B. If the T-Bill is zero-coupon, the Accrued Market Discount is reported as interest on your 1099-INT. I have no idea why this is how's it's done, but I have multiple T-bill purchase/sales this year done this way.
In regards to your state taxes, in most (if not all) states US Government interest is non-taxable at the state level. Unfortunately, TurboTax does not correctly pass the Accrued Market Discount thru properly to the state form. Trying to figure out this problem is why I'm searching the forums at this point.
