Spouse works in different state from where we live- AGI is pulling into non-resident return?

It is normal that you pay tax to the state where you live and to the state(s) where you work. In this case "you" is both of you.

The way that many (not all) states deal with the issue of double taxation is that any taxes paid on income in one state is used as a tax credit in the other state(s). In your case, Delaware starts out with the federal income (more or less), then calculates the state tax.

Then, when you do the NC tax return, TurboTax will complete SC form D-400TC. The first part of this form calculates the tax paid to other states and applies that as a credit to NC taxes.

In short, you will pay state tax on your federal income somewhere but it just may not be to your home state.

Reminder, to get this to work, be sure to enter your non-resident state first into TurboTax, then enter your home state, so that TurboTax can calculate the nonresident state tax first and carry it to the resident state.

"Do we need to file separately?" - we do not have nearly enough information to be able to answer that. I would say that the only way that you can be sure is to run the tax return jointly and then separately to see the difference.

Sigh... I should have known that the bot wouldn't understand my question. Even though the box doesn't even allow me to state my full question. I found my answer elsewhere. 

No you don't pay taxes to a state that you did not live in or work in (eyeroll). I was asking why the form is pulling in my income when it shouldn't. The answer is that TT can't talk to all of the forms correctly.

Just in case someone else has the same question this is the solution: 

We need to file Married, filing separately just for my spouse on the Non-Resident state tax form so she can report what she earned in that state and I don't report anything to that state because I did not live or work there. The issue is that TurboTax software doesn't know how to talk to the State's non-Resident return form and only include my spouse's income in the Column A of the Non-Resident return. It pulls in both of our income and that is incorrect. It should only pull in my spouse's income. The state form was then erroneously calculating our AGI (and therefore our tax) based on both my salary and my spouse's salary which is wrong. It should only calculate on my spouse's salary. 

All of the other answers on here were to buy the desktop software and do a "mock" federal return for my spouse, then take that information and enter it in manually to the State non-resident form. I did it a different way. I signed my wife up for a TT account online and did her "mock" federal return there. I then took that information and hand typed it into the State Non-Resident Return form. It works if you know how to read the actual forms and instructions. If you can't figure out which lines correlate to what (i.e. you've never done taxes by hand before) then just buy the desktop version, but for me this was super simple.