What TurboTax is suggesting is the correct option. Since you are not a Virginia resident, Virginia does not tax you for remote work on behalf of a Virginia-based company. You must be physically working there as an employee to be taxed in Virginia. So it is correct to say that your employer mistakenly withheld Virginia tax.
You will be taxed in North Carolina on this income. If your employer did not withhold NC taxes, you will need the Virginia refund to pay your NC tax. You cannot claim a credit for taxes paid to Virginia on your NC return, because you will receive a full refund of your Virginia taxes withheld.
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