State tax filing

The TurboTax guidance says:  "The federal government taxes income you receive from its own bonds. Although your state doesn't tax income generated by U.S. government bonds, each state defines government bonds differently.

To find out if these dividends are taxable in your state, review your 1099-B along with the supplemental pages from your consolidated tax statement. If you can’t find the info, you might be able to get it from your brokerage or mutual fund company website.

Once you have found the info in your documents, just follow the screens here and we’ll help you enter an adjustment for the nontaxable amount in your state. When you get to your state taxes, we'll subtract the adjustment from the income reported to your state."

You had to enter the adjustment manually (see screen shot below), this amount is subtracted from the 1099-DIV Box 1 entry.  In general, the federal taxable amount is Box 1, so if the adjustment is more than the taxable amount, you will get the error you indicated, because the subtraction for Montana has to be included in federal income.  Because this amount is specific to the 1099-DIV, you cannot use a combination of other income.  See page 19 of the Montana Individual Income Tax Return (Form 2) Instructions.