TurboTax programming error on taxable interest income. It's right on the US 1040 (line 2b) but WRONG place (line 16b–Tax-exempt interest) on NJ 1040. How to fix this?

You may be seeing interest that's actually taxable on your federal return, but not on your New Jersey return.

According to Most investment income is taxable in New Jersey as interest, dividends, or capital gains in New Jersey's Nontaxable Investment Income: Understanding Income Tax:

However, some interest income is exempt from tax, including:   

• Interest and gains from government debt obligations (such as bonds) of the State of New Jersey or its political subdivisions. These subdivisions can include municipalities, counties, school districts and authorities; 

• Interest and gains from debt obligations of the federal government, such as U.S. Savings Bonds and Treasury Bills; 

• Certain distributions from New Jersey Qualified Investment Funds; 

• Distributions from mutual funds on interest earned from federal debt; 

• Earnings on distributions from qualified State tuition programs. This includes the New Jersey Better Educational Savings Trust (NJBEST) program; and 

• Earnings on tuition savings programs formed under Section 529A of the Internal Revenue Code. This includes the State’s Achieving a Better Life Experience (ABLE) program. 

If this isn't what you're seeing, please post back, including an explanation of what type of interest you're reporting.