I ran into the same issue today. Provided all the necessary information about rank, National Guard, etc. on the Federal input screens, and it's still including the DFAS income in the Michigan income. In addition, there is no way to manually adjust (remove) that income on MI-Sch 1. Now I have to paper file the MI return.
Intuit, you need to fix this, or at least give the user the ability to make adjustments.
Note: I worked 15 years at a major competitor of Intuit so I'm not a rube.
If you get a workaround from Intuit, please post it here.
