I have the same issue in the state of Maryland. However, the Maryland section of Turbotax does not support editing the amount of the interest that is US Government deductible in Maryland. It assumes all interest on my 1099 is US Government interest or non is. The software does not permit adjusting the amount for only the US government portion. The only fix this is to override the value on the Maryland tax form. There should be a box during the interest entry process, similar to municipal income, which allows for the distribution of interest that is US Government and the portion that is not US Government.
Box 3 on the Federal interest entry is inaccurate in that it and the broker-supplied amounts (Fidelity) only account for saving bonds and treasuries. In Maryland interest on several agency securities is also exempt from state taxes. The interview provides no way of deducting the agency interest from MD taxable income.
