Entered $10 from 1099-INT and it reduced my Federal return by $11 and NJ state return by $1. Total $12 reduction in return. How is it possible ?

[MinhT1]

It is possible. As you enter $10 interest income, your taxable income will increase by $10. Tax is increased by $2 to $3, and income-based credits such as the earned income credit may decrease by a larger amount.

[dmertz]

Your federal tax liability is determined from the tax tables in $50 increments of income.  Adding even a single dollar of income has a chance of moving you from one $50 step to the next.  When you are in the 22% tax bracket, a step to the next $50 increment means $11 of additional federal tax liability.

[VolvoGirl]

I once added $6 in interest and the tax went up $12! It pushed me into the next tax bracket. I was right at the line.   Here is part of the Tax Table.  If you are Single and went from 44,240 Taxable Income and added $10 the tax jumps from 5,588 to 5,599 and increase of $11