State tax filing

After you enter your interest income in the federal section of TurboTax, you will have the option of saying your state does not tax the income as follows:

Once you check that box, your interest will show as tax exempt on the NJ form NJ-1040, line 16(b). The only problem is that it will exclude all of the interest. To correct that problem, you need to split the 1099-INT entry up into two entries, with one just reporting the income that is exempt in New Jersey.