Since you are a New Jersey Resident, NJ taxes all your income, which includes interest, dividends, etc.
New York only taxes you on income you earn there, and NJ gives you a credit for any tax paid to NY.
Which is why TurboTax subtracted your US Government interest from NY.
Here's detailed info on Investment Bonds you may find helpful.
More info on How to File a Non-Resident State Return.
@pkapadia
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