Do I check off the box that my state doesn't tax my interest for checking & money markets? How do i know if it is taxable to federal?

[SweetieJean]

That box is used only for certain situations, such as US Savings Bond interest (which is taxed by Federal, but not by state).   Normal checking, savings and money market interest is taxed by both.

[KathrynG3]

Let TurboTax sort the interest to the correct categories by entering Form 1099-INT as received.

Nearly all interest would be taxable at the federal level, but may not be when amounts are reported in  Box 3 or Box 8.

The interest would be designated as tax-exempt to your state on Form 1099-INT. The supporting details from the year-end statement will show which state had the tax-exempt interest. 

By looking through these details, you will be able to answer the questions from the TurboTax interview.

For more information, see: Topic No. 403 Interest Received

Filing Tax Form 1099-INT: Interest Income