I had the same problem on a 2023 PA state return. TurboTax correctly excluded actual interest received from US Treasuries but included the the discount, as interest income on PA, for US Treasuries purchased on the open market and redeemed at maturity. This was part of the yield to maturity when the Treasuries were purchased. In fact, TurboTax correctly showed the discount amount as interest on the federal return, and not as capital gains.
To fix PA I went into "Forms" on the state return and found a line labeled "Other reduction adjustments. See Instructions" and I entered, "ACCRUED INTEREST ON US TREASURIES REDEEMED" as the description and the discount amount. That did the trick.
How would inexperienced tax preparers, the average person, even know there was a problem when they are relying on TurboTax to make the correct adjustments automatically?
