"The TurboTax federal return "recognizes" that the excess $300 was withdrawn, and is not counting it as taxable income. "
The question is how this HSA contribution was made.
If you made this contribution through your employer (so that it was included in the entry on your W-2 in box 12 with a code of W), the the excess is automatically added to Other Income - line 8 on Schedule 1 (1040).
The reason is that the code W entry tells TurboTax that the employer removed the code W amount (including the excess) from Wages in boxes 1, 3, and 5, so when the excess is discovered, it must be added back to Other Income. It actually makes no difference for this particular operation whether the excess is withdrawn or not. (the withdrawal is to avoid the 6% penalty for carrying the excess over to next year)
If, however, you made the HSA contribution as a direct contribution (not through your employer), then the excess is NOT added to Other Income - rather, the HSA deduction on Line 12 of Schedule 1 (1040) is reduced by the amount of the excess.
So if the HSA contribution was part of the code W amount on your W-2, then the $300 should appear on Schedule X (MA), just as it appears on line 8 on Schedule 1 (1040).
If your situation is different, come back and tell us.
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