How do you calculate interest from US Gov Obligations? Multiply the % of income from US gov obligations by the fund's ordinary dividends? Does it include capital gains?

Yes, that's exactly what you do. Multiply the percentage of income from U.S. government obligations by the Total Ordinary Dividends in box 1a of the 1099-DIV. Do not include capital gain distributions in box 2a.

I entered the 74% from the Vanguard Federal MM fund, but it did not change the amount of dividend income listed on the 1099-DIV section.  Does TurboTax not do the calculation? Must I list the reduced amount myself?  The IRS may notice the discrepancy between my filing and the amount reported by Vanguard.  Your advice?

@jjk4937  The percentage of income from U.S. government obligations does not affect your federal tax return. The full amount of dividends is taxable on your federal tax return. The percentage of income from U.S. government obligations only affects your state tax return. The income from U.S. government obligations is not taxable by the state.

I'm confused. I have 1099-Div page that shows I have two funds that have different % to use for us gov obligations. Do I just put the total from box 1a in and let my state taxes figure it out or do I have to figure each fund out and put the actual amount that I get in the TT box?

Yes, you must figure out the percentage of dividends for each fund that is considered government bonds by using the percentage provided by the financial agency.   Once you figure out the amount, then that amount will not be taxable to your state.  The amount entered in the federal program should carry to your state as nontaxable. Likewise you must figure out any percentage that applies to municipal bonds if you have tax exempt interest dividends in box 12.

Every state has a slightly but similar interview, watch the screens for any question relating to the bond interest.

1099-INT:

1. Open (continue) your return if it's not already open.
2. Inside TurboTax, search for 1099-INT and select the Jump to link in the search results.
3. Answer Yes to Did you receive any interest income?
   • If you see Here's the interest we have so far, select Add interest income.

1099-DIV:

1. Open or continue your return.
2. Search for 1099-DIV and select the Jump to link in your search results.
3. Answer Yes to Did you receive any dividend income?
4. Choose your bank or brokerage from the list to import your 1099-DIV and select Continue or manually enter your 1099-DIV  by selecting I'll type it in myself.
5. Follow the on-screen instructions to enter your 1099-DIV.

Your state will not figure it out for you. See the images below for the dividend section.

Thank you very much Diane. I thought that's how I should do it but you confirmed it.