accrued US Treasuries discount handling on IL state tax

No, your US Treasuries Accrued Market Discount would not be a subtraction for Illinois. 

Please see 2019 Illinois IL-1040 Schedule M Additions and Subtractions Instructions page 3 quoted below:

Line 22 — U.S. Treasury bonds, bills, notes, savings bonds, and U.S. agency interest

Enter the income included in your Form IL-1040, Line 1, you received from U.S. Treasury bonds, bills, notes, savings bonds, U.S. agency interest, and other similar obligations from your

• federal Form 1040 or 1040-SR, or
• mutual fund statement plus

any income listed in Publication 101, Income Exempt from Tax, under

• “What if I have income from obligations of the United States Government?”
• “What federally-taxable income is exempt from Illinois Income Tax by other federal statutes?”
• “What if I have distributions from money market trusts (mutual funds)?”

Mutual fund distributions

Include the entire amount of federally taxed distributions received from mutual funds investing exclusively in U.S. government obligations. If the mutual fund invests in U.S. government obligations and non-exempt obligations, your deduction is the distribution received from the mutual fund attributable to the U.S. government obligations, as determined by the mutual fund. If the mutual fund does not provide this percentage amount, multiply the total distribution by a fraction.

The numerator is the amount invested by the fund in exempt U.S. government obligations, and the denominator is the fund’s total investment.

• This subtraction is the amount net of any related bond premium amortization.
• Savings bond interest that is not included in your federal adjusted gross income is not an allowable subtraction.
• Do not include your distributive share of a subtraction for U.S. government obligations from a partnership, an S corporation, a trust, or an estate on this line. Your distributive share of subtractions should be included on Line 14 of this schedule.

I'm having a similar issue... I purchased a US Treasury Note in the secondary market (at a discount) which matured in 2022.  The Accrued Market Discount for this Note is appearing on my Federal Schedule B, but is not flowing through to my Illinois Schedule M, line 22 for US Treasury Interest.

Do I need to adjust this manually somewhere in TT to capture the US Treasury tax exemption for Illinois on the Accrued Market Discount?  This Note was originally issued at a discount, although I haven't yet received a 1099-OID.

The US Treasury Note Interest should be listed as a subtraction on your Illinois Schedule M.  You should not have to adjust the subtraction in TurboTax manually.  As AmyC stated, verify that you have entered the interest in Box 3 for US savings bonds.  To check this in TurboTax, follow these steps:

1. Click Wage & Income
2. Click Revisit on 1099-Int
3. Click Type it myself
4. Enter interest on US Savings bonds and Treas. obligations in box 3

@DownTownDru