"It still appears on income on the wages and income."
Are you talking about on the TurboTax Wages and Income screen in the Step-by-step interview?
It is confusing, but these summary screens in TurboTax reflect what you entered, not necessarily how these amounts are treated tax-wise.
What matters is whether or not this 1099-SA amount appears on line 8 (Other Income) of Schedule 1 (1040).
The way the 1099-SA works is that when you enter this amount in the HSA interview, it briefly appears on line 8 of Schedule 1. This is because the IRS considers these distributions to be taxable by default.
However, when a screen or two later, you indicate that all the distribution was for qualified medical expenses (as John said), then TurboTax realizes that it is not taxable and removes it from Line 8 on Schedule 1.
However, this amount will always appear on the Wages & Income Summary because it reflects your entry, not your tax.
Always double-check what's on your actual tax return, if in doubt.
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