First, the amount in box 16 on your W-2 - state income, is not actually used on your state return. Oh, yes, it prints on line 12 of the 540NR, it is not used anywhere else.
You referred to CA 540NR, line 1a. You said, "In CA tax Income and adjustments section: Tell us about your California income: How much of the $(Total adjusted income) did you earn while living or working in California I entered 12000 ( CA W2 box 16 State Wage included HSA)" and then, "However, this 12000 is show up in line 1a (Total amount from federal Form(s) W-2, box1) in my CA 540NR.
In the end, total CA amount: 12000 (line 1a Total amount from federal Form(s) W-2, box1) + 2000(Other earned income) = 14000 in my CA 540NR. It means that I will be taxed for 4000 adjusted income instead of 2000."
On my test return, the "12,000" does not show up in line 1a, but rather the original 10,000.
So now we have to figure out what is different between your return and my test.
1. Are you using the Online product or the CD/download product?
2. On your W-2: box 1 is 10,000; box 12 code W is 2,000; box 16 is 12,000
3. On what line on the CA 540NR does the 14,000 appear?
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