Yes you have to pay tax on that. Go back to the 1099-INT data entry form. Look carefully just below the Payer input box and you will see a box to check that says that your 1099-INT has more boxes and just box 1. Click on that and the rest of the 1099-INT boxes will show, including Box 3. You enter your savings bond interest in Box 3. It is taxable on your Federal return but not state. Turbotax takes care of that.