This income is taxable in California. This California memorandum explains (click on link): California tax of third-party sick pay. Based on the information you post from the information on that W-2, it looks that while $30962 of the third-party pay is taxable Federally, California considers $24188 to be taxable in the state. Read through your notification to verify whether or not this is the case.
If you feel that the program may have calculated this in error, contact the Audit Support team for assistance. For instructions, please see this link: What is the TurboTax Audit Support Guarantee?
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